M/s Verifone India Technology Pvt Ltd , Bangalore V. Income Tax Officer Ward-7(1)(3), Bangalore

ITA 3088/BANG/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6048 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 15-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Depreciation; Transfer pricing; International transaction; TDS
• Section: 92C; 92; 13; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 3088/Bang/2018 Assessment Year : 2011-12 M/s. Verifone India Technology Pvt. Ltd., A 101, 1 st Floor, Cyber Park, Plot No. 76, 77 & 78, Doddathogur Village, Begur Hobli, Bangalore South Taluk, Bangalore – 560 100. PAN: AACCV1683K Vs. The Income Tax Officer, Ward – 7 (1) (3), Bangalore. APPELLANT RESPONDENT & ITA No. 3089/Bang/2018 Assessment Year : 2012-13 M/s. Verifone India Technology Pvt. Ltd., A 101, 1 st Floor, Cyber Park, Plot No. 76, 77 & 78, Doddathogur Village, Begur Hobli, Bangalore South Taluk, Bangalore – 560 100. PAN: AACCV1683K Vs. The Deputy Commissioner of Income Tax, Circle – 7 (1)(2), Bangalore. APPELLANT RESPONDENT Assessee by : Shri K.R. Vasudevan, Advocate Revenue by : Shri Priyadarshi Mishra, Addl. CIT (DR) Date of Hearing : 22-02-2022 Date of Pronouncement : 25-03-2022 Page 2 ITA Nos. 3088 & 3089/Bang/2018 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals filed by assessee against orders passed by Ld.CIT(A)-7, Bangalore dated 17.09.2018 for A.Y. 2011-12 and 18.09.2018 for A.Y. 2012-13 on following grounds of appeal. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. Grounds of appeal:- ITA No. 3088/Bang/2018 (A.Y. 2011-12): “I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer (learned AO'), learned Transfer Pricing Officer(learned TPO') and the Honourable Commissioner of Income Tax (Appeals) ["Hon'ble CIT(A)"] grossly erred in adjusting the transfer price by INR25,156,574/- with respect to the international transactionrendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub- section (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting comparability analysis undertakenin the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price (`ALP') of the international transaction. 4. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in disregarding multiple year data and they ought to have accepted the use of contemporaneous data due to non- availability of current year data in the public domain at the time of preparing the documentation. 6. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not applying the upper limit lor sales turnover filter while carrying out the benchmarking analysis. Page 3 ITA Nos. 3088 & 3089/Bang/2018 7. The learned AO/ learned TPO/ Hon'ble CIT(A) has grossly erred in not rejecting the following companies from the list of comparable companies:  L & T Infotech Ltd.  Mindtree Ltd.  Sasken Communication Technologies Ltd. 8. The learned AO/learned TPO/Hon'ble CIT(A) erred in not allowing the benefit of applying the range of +/-5% in determining the arm's length price. 9. The learned AO/ learned TPO/ Hon'ble CIT(A) has erred in restricting the working capital and not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-à-vis independent comparable companies. 10. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-à-vis the comparable companies. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” ITA No. 3089/Bang/2018 (A.Y. 2012-13): “I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer (`learned AO'), learned Transfer Pricing Officer(`leamed TPO') and the Honourable Commissioner of Income Tax (Appeals) ["Hon'ble CIT(A)"] grossly erred in adjusting the transfer price by INR 2,37,82,190/- with respect to the international transaction rendered by the Appellant under section 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub- section (3) of section 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in rejecting comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price (`ALP') of the international transaction. Page 4 ITA Nos. 3088 & 3089/Bang/2018 4. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in disregarding multiple year data and they ought to have accepted the use of contemporaneous data due to non- availability of current year data in the public domain at the time of preparing the documentation. 6. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not applying the upper limit for sales turnover filter while carrying out the benchmarking analysis. 7. The learned AO/ learned TPO/ Hon'ble CIT(A) has erred in restricting the working capital and not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies. 8. The learned AO/ learned TPO/ Hon'ble CIT(A) erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-a-vis the comparable companies. II. Corporate Tax 9. The learned AO/ Hon'ble CIT(A) has erred in disallowing the depreciation of software on the premise that TDS was not deducted on the purchase of software 10. The learned AO/ Hon'ble CIT(A) has erred in determining the total income of the Assessee INR 83,016,826/- instead of INR 59,049,900/- The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” The Ld. AR submitted that assessee has raised additional grounds for A.Ys. 2011-12 and 2012-13. The additional grounds raised reads as under: Additional grounds of appeal: A.Y. 2011-12: “Based on the facts and circumstances of the case, Verifone India Technology Private Limited ("the Appellant"), respectfully submits the following additional grounds of appeal for admission before Your Honours: Page 5 ITA Nos. 3088 & 3089/Bang/2018 11. The Ld. AO/ Ld. IPO/ Hon'ble CIT (A) have grossly erred in not rejecting the following companies from the final list of comparable companies:  Acropetal Technologies Limited  E-Infochips Limited  ICRA Techno Analytics Limited  Persistent Systems and Solutions Limited The above ground No. 11 is in continuation to Ground No. 7 raised in Form 36 and without prejudice to the other grounds of appeal preferred by the Appellant.” A.Y. 2012-13: Based on the facts and circumstances of the case, Verifone India Technology Private Limited ("the Appellant"), respectfully submits the following additional grounds of appeal for admission before Your Honours: 6A. The Ld TPO/ Ld AO/ Hon'ble CIT(A) erred in not rejecting the following companies from the set of comparable companies proposed in the TP order:  Infosys Ltd.  Larsen & Toubro Infotech Ltd.  Mindtree Ltd.  Persistent Systems Ltd.  R S Software India Ltd.  Sasken Communication Technologies Ltd. The said ground is in continuation to Ground No. 6 of the Form 36 wherein a general ground on application of upper turnover filter has been taken and is without prejudice to the other grounds of appeal preferred by the Appellant.” The Ld.DR did not object for the additional grounds being admitted. We note that the additional grounds are directly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Page 6 ITA Nos. 3088 & 3089/Bang/2018 Accordingly, we admit the additional grounds raised by assessee for both years under consideration. 2. Brief facts of the case are as under: The assessee is a captive service provider, rendering Software Development Services to its parent company Verifone Singapore Pte. Ltd. Assessment Year 2011-12 During the year, the assessee reported the following international transactions: International transaction Value (INR) Technical Support Services 6,04,28,097/- R&D Services 21,64,04,719/- The Ld.TPO noted that assessee computed the margin at 14.94% by using OP/OC PLI. It used TNMM as the most appropriate method and used 12 comparables having average margin at 10.94%. It was thus submitted by the assessee that the transaction is at arms length. The Ld.TPO rejected the TP study done by the assessee, and carried out analysis by adopting various filters. The Ld.TPO selected following set of comparables having average margin of 24.82%. Sl.No Company Name (OP/OC) 1 Acropetal Technologies Ltd. 31.98% 2 E Zest Solutions 21.03% 3 E-Infochips Ltd. 56.44% 4 Evoke 8.11% 5 ICRA Techno Analytics Ltd. 24.83% 6 Infosys Ltd. 43.39% 7 Larsen & Toubro Infotech Ltd. 19.83% 8 Mindtree Ltd. 10.66% 9 Persistent Systems & Solutions Ltd. 22.12% Page 7 ITA Nos. 3088 & 3089/Bang/2018 10 Persistent Systems Ltd. 22.84% 11 R S Software India Ltd. 16.37% 12 Sasken Communication Technologies Ltd. 24.13% 13 Tata Elxsi Ltd. 20.91% AVERAGE 24.82% 3. The Ld.TPO restricted the working capital adjustment at 1.63%, however while computing the ALP, Ld.TPO took the Working Capital adjustment as (-) 1.48%. The Ld.TPO proposed an adjustment at Rs.2,73,72,480/-. On receipt of the order under section 92CA of the Act, the Ld.AO passed the draft assessment order confirming the addition as per the order under section 92 CA of the Act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 4. The assessee sought for exclusion of comparable companies on grounds of upper turnover filter. The Ld.CIT(A) rejected the exclusion of companies based on upper turnover filter. However, the Ld.CIT(A) excluded E-Zest Solutions Ltd., Infosys Ltd., Persistent Systems Ltd., Tata Elxsi Ltd. from the final list by relying on the decision of coordinat bench of this Tribunal in assessee’s own case for AY. 2008-09. 5. The Ld.CIT(A) rejected the contentions of the assessee in respect of Larsen & Tubro Infotech Ltd., Mindtree Ltd., and Sasken Communication Technologies Ltd. Aggrieved by the of the Ld.CIT(A) the assessee is in appeal before this Tribunal. The Ld.AR at the outset submitted that assessee wish to argue in respect of following comparables in Ground no.7 for exclusion:  L & T Infotech Ltd.  Sasken Communication Technologies Ltd Page 8 ITA Nos. 3088 & 3089/Bang/2018 He submitted that assessee do not wish to argue in respect of Mindtree Ltd. 6. He submitted that assessee has raised Additional Grounds before the Hon'ble Tribunal for exclusion of the following four companies, on grounds of functional comparability: a) Acropetal Technologies Ltd. b) E-Infochips Ltd. c) ICRA Techno Analytics Ltd d) Persistent Systems & Solutions Ltd. The Ld.AR submitted that assessee wish to argue Ground no.9 relating to negative working capital adjustment. No other grounds have pressed for adjudication except the relief with regard to exclusion and inclusion of comparables raised in Ground no.7 and additional ground mentioned herein above. 7. Before we undertake the comparability analysis it is sine qua non to understand the FAR of assessee. Functions: Functions performed by Verifone India with respect to transactions with Verifone Singapore are :  Hire and train employees at Indian facilities to improvement of the general skill level and provide special training in specific domains as per the business need indicated from time to time by Verifone Singapore.  Software Development and technology support. Typically software development consists of following services:  Following the requirement analysis of Verifone Singapore Page 9 ITA Nos. 3088 & 3089/Bang/2018  Resource planning for the development of software as per requirements of Verifone Singapore  Developing software as per Design drawn by Verifone Singapore.  Coding, Quality check, testing and validation of the program developed. Overall software authentication and validation is done by Verifone Singapore.  Performing of additional functional requirement marked by Verifone Singapore. Assets:  Human resources: Verifone India has the technological capabilities, physical assets and trained manpower to undertake the offshore software development work.  Assets Employed: Assets might be clearly recognizable i.e. tangible (Plant & Machinery, Equipment, Building, etc.) or they might be intangible assets (Intellectual Property, Brand Name, Trademarks, Technical Know, etc.). Verifone India employs routine tangible assets such as Plant & Machinery, Furniture & Fixtures, etc., for the purpose of its business. Verifone India does not own any intellectual property developed or obtained during the development of software to Verifone Singapore, since the entire technology rights for the software developed are owned by Verifone Singapore. Page 10 ITA Nos. 3088 & 3089/Bang/2018 Risk: Verifone India being just a Software development service center does not bear any of the risks undertaken by a full fledged developer. It is also noted that assessee undertakes limited manpower risk and Foreign currency risk. Based on the above, assessee has been characterized to be a capital service provider rendering software services to Verifone Singapore and the remuneration is billed based on cost plus model as per the terms of the agreement entered into between both parties. Based on the above we shall not analyse the comparables sought for exclusion by assessee in Ground no. 7 and Additional Ground. 8. Ground No.7: Assessee is seeking exclusion of of only two comparables being, L& T Infotech Ltd and Sasken Communication Technologies Ltd. At the outset the Ld.AR submitted that coordinate bench of this Tribunal in the case of M/s. Fiber Link Software Pvt. Ltd. vs. ACIT in IT(TP)A No.239/Bang/2016 for the same assessment year A.Y 2011- 12, by order dated 03/03/2021 excluded following comparables from the final set of comparable. On the contrary, the Ld.Sr.DR though opposed the submission by the Ld.AR, could not controvert the categorical observations by coordinate bench of this Tribunal in the case of M/s. Fiber Link Software Pvt. Ltd.,(supra). We have perused the submissions advanced by both sides in light of records placed before us. 9. We note that the coordinate bench of this Tribunal in the case of M/s.Fiber Link Software Pvt. Ltd. (supra), for the same assessment year A.Y 2011-12, excluded Persistent Systems & Page 11 ITA Nos. 3088 & 3089/Bang/2018 Solutions Ltd., and Sasken Communications Technologies Ltd. by observing as under: “7. We have considered the rival submissions. Even, if the assessee had included these three companies in the list of comparables as part of the TP study analysis, however, mere inclusion of the companies in the list of comparables does not operate as estoppel against the assessee, if on examination of the relevant facts it is found that these companies are functionally not comparable with that of assessee. Therefore, the selection of the companies by the assessee itself is not the finality of the comparability of the entities when the TPO has to examine the functional comparability as well as the other filters for inclusion or exclusion of the companies in the list of comparables for determination of ALP. We find that prima facie assessee has made out a case that in a series of decisions of this Tribunal, these three companies are held to be not comparable on various reasons and therefore it necessitates the functional examination of these companies for the purpose of inclusion or exclusion in the list of comparables. The Special Bench of this Tribunal at Chandigarh in the case of Quark Systems P. Ltd, (supra) has held that if a company is otherwise not found to be comparable with the assessee then simply it is included in the list of comparables in the TP study would not be considered as estoppel for raising an objection by the assessee for exclusion of such company for the purpose of determination of ALP. We therefore accept the plea of the Assessee, for admission of exclusion of the aforesaid three companies. 8. As far as the plea for exclusion of Persistents Systems & Solutions Ltd., Persisten Systems Ltd., and Sasken Communication Technologies Ltd., is concerned,this Tribunal in the case of a software development service provider such as the Assessee for the very same AY 2011- 12 in the case of Autodesk India Ltd. Vs. ACIT in IT(TP) A.No.156 & 220/Bang/2016 by order dated 21.12.2018 held that these three companies are not comparable companies. It is pertinent to mention that the very same thirteen companies chosen in the case of the Assessee in this appeal and in the case of Autodesk India Ltd. (supra) were identical. The tribunal held on the comparability of the aforesaid three companies as follows: “26. In ground No. 3(k), the assessee has prayed for exclusion of all 3 companies which were retained by the DRP in the impugned order. In this IT(TP)A.No.156 & 220/Bang/2016 Page 15 of 18 regard, the ld. counsel for Page 12 ITA Nos. 3088 & 3089/Bang/2018 the assessee has brought to our notice that Persistent Systems & Solutions Ltd. was regarded not comparable for the reason that it had diverse functions and segmental details were not available and that it was product company and that there was abnormal increase in turnover due to funding from holding company. These aspects were considered by the Tribunal in the case of Applied Materials (I) P. Ltd. (supra) and vide para 9.2.1 to 9.2.4, the Tribunal regarded this company as not comparable. Persistent Systems Ltd. was also considered as not comparable in the aforesaid order vide same paras referred to above for the reason that it was engaged in diverse activities and in the absence of segmental details, besides holding IPRs. 27. The other company is Sasken Communication Technologies Ltd. which was retained by the DRP. As far as this company is concerned, the plea of the assessee is that this company is a software product company and segmental details between the software development services and software products is not available. Our attention was drawn to the decision of the Bangalore Bench of the Tri in the case of Applied Materials (I) P. Ltd. (supra) wherein in para 9.3.1 to 9.3.3 this Tribunal came to the conclusion that comparability of this company has to be decided afresh by the TPO after considering the facts as recorded in the decisions rendered by the Tribunal in the case of Electronics for Imaging India P. Ltd. (2017) 85 taxmann.com 124 (Bang.Trib.). We are of the view that similar directions would be appropriate in the present assessment year also. Thus, ground No.3(k) is decided accordingly.” Respectfully following the aforesaid decision, we direct exclusion of the aforesaid three comparable companies from the list of comparable companies chosen by the TPO.” There is nothing placed on record by the revenue to take a different view. Respectfully following the above view, we direct the Ld.AO/TPO to exclude excluded Persistent Systems & Solutions Ltd., and Sasken Communications Technologies Ltd.from the final list. Accordingly this ground raised by the assessee stands partly allowed. Page 13 ITA Nos. 3088 & 3089/Bang/2018 Additional Ground: 10. In the Additional Ground, assessee is seeking exclusion of Acropetal Technologies Ltd., E-Infochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems & Solutions Ltd. At the outset the Ld.AR submitted that coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra) in IT(TP)A No.52 & 97/Bang/2016 for the same assessment year A.Y 2011-12, by order dated 05/08/2020 excluded Acropetal Technologies Ltd., E-Infochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems & Solutions Ltd. from the final set of comparable. On the contrary, the Ld.Sr.DR though opposed the submission by the Ld.AR, could not controvert the categorical observations by coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra). We have perused the submissions advanced by both sides in light of records placed before us. 11. We note that the coordinate bench of this Tribunal in the case of LG Soft india Pvt. Ltd vs.DCIT (supra), for the same assessment year A.Y 2011-12, excluded Persistent Systems & Solutions Ltd., and Sasken Communications Technologies Ltd. by observing as under: “11. As far as Acropetal Technologies Ltd. is concerned, vide para 8 of the order of Tribunal in Electronics for Imaging (I) Pvt. Ltd. (supra), exclusion of Acropetal was upheld on the ground that this company was into development of computer products. The Tribunal also held that L&T Infotech Ltd. had RPT at 18.66% and since the RPT was beyond the threshold limit of 15%, this company was directed to be excluded from the list of comparable companies. The Tribunal further excluded Tata Elxsi Ltd. from the list of comparables on the ground that this Page 14 ITA Nos. 3088 & 3089/Bang/2018 company was engaged in diversified activities and was not a pure SWD services provider such as the assessee. In para 9 of the aforesaid order, the Tribunal held e-Infochips Ltd., was earning revenue both from the software services and software products and though the break-up of revenue from the two segments were available, but the break-up of Operating Cost and Net Operating revenue and segmental details were not available. ...................... 13. The Tribunal in the case of DCIT v. Ikanos Communication Pvt. Ltd. in ITA 137/Bang/2015 excluded the company, ICRA Techno Analytics Ltd., on the ground that it was engaged in engineering and consulting services, besides licensing and sub-licensing and no segmental information was available to compare the margins of SWD services segment. 14. The Mumbai Tribunal in the case of Ness Technologies (I) Pvt. Ltd. v. DCIT in ITA No.696/Mum/2016 held Infosys Ltd. to be not comparable for the reason that this company was engaged in manufacturing of software products and was a giant company assuming various risks. As far as Larsen & Toubro Infotech Ltd., is concerned, vide paragraph-8 page-16 of the order in the case of Electronics for imaging India Pvt. Ltd., (supra) this tribunal excluded this company on the ground of presence of onsite revenue of more than 50% and that the related party transaction was more than 15% (18.66%). 15. Respectfully following the aforesaid decisions, we uphold the exclusion of the aforesaid 7 companies from the list of comparable companies and ground No.2 raised by the assessee to this extent is dismissed. 16. Now we shall take up the appeal of the assessee. The assessee in ground No.13 seeks exclusion of 3 companies viz., Persistent Systems & Solutions Ltd., Sasken Communication Technologies Ltd. and Persistent Systems Ltd. Exclusion of these 3 companies was considered by the Tribunal in the case of Electronics for Imaging (I) Pvt. Ltd. (supra). In para 8 of the order, this Tribunal held that Persistent Systems & Solutions Ltd. was a company engaged in SWD services and products with no segmental details and excluded it. Similarly, Persistent Systems Ltd. was also excluded on the ground that it was engaged in diverse activities with no segmental break-up. As far as Sasken Communication Technologies Ltd. is concerned, this Tribunal in the case of Symantech Software & Services (I) Pvt. Ltd. (supra) has excluded this company on the ground of functional IT(TP)A Nos.52 & 97/Bang/2016 dissimilarity viz., dealing with multimedia Page 15 ITA Nos. 3088 & 3089/Bang/2018 products and R&D activities with no break-up of segmental information. 17. Following the aforesaid decisions, we direct exclusion of the aforesaid 3 comparable companies. The TPO is directed to compute the ALP of the international transaction in accordance with the directions given above in this order, after affording Assessee opportunity of being heard.” There is nothing placed on record by the revenue to take a different view. Respectfully following the above view, we direct the Ld.AO/TPO to exclude excluded Acropetal Technologies Ltd., E- Infochips Ltd., ICRA Techno Analytics Ltd., Persistent Systems & Solutions Ltd. Accordingly additional ground raised by the assessee stands allowed. 12. Ground No. 9: Working Capital Adjustment We note that the Ld.TPO restricted the WCA to 1.63%, but in the computation of the TP Adjustment, the Ld.TPO took the working capital adjustment as -1.48%. It is settled principle that working capital adjustment cannot be restricted or can be negative. The assessee placed reliance on the decision in the case of Huawei Technologies India [2019] 101 taxmann.com 313 (Bangalore) wherein coordinate bench of this Tribunal held that working capital should be allowed as per actuals. Respectfully following the view taken by coordinate bench of this Tribunal, we direct the Ld.AO/TPO to grant the WCA on actuals Accordingly this ground raised by the assessee stands allowed. Assessment Year 2012-13 13. During the year under consideration, the assessee reported the following international transactions: International transaction Value (1NR) Technical Support Services 8,90,22,482/- Page 16 ITA Nos. 3088 & 3089/Bang/2018 R&D Services 28,22,35,169/- The Ld.TPO noted that assessee computed the margin at 14.91% by using OP/OC PLI. It used TNMM as the most appropriate method and used 7 comparables having average margin at 7.66%. It was thus submitted by the assessee that the transaction is at arms length. 14. The Ld.TPO rejected the TP study done by the assessee, and carried out analysis by adopting various filters. The Ld.TPO selected following set of comparables having average margin of 22.63%. Sl. No. Company Name (OP/OC) 1 Datamatics Global Services Ltd. 14.57% 2 Genesys International Corporation Ltd. 30.09% 3 ICRA Techno Analytics Ltd. 17.24% 4 Infosys Ltd. 43.10% 5 Larsen & Toubro Ltd. 25.47% 6 Mindtree Ltd. 15.01% 7 Persistent Systems Ltd. 27.20% 8 R S Software India Ltd. 15.34% 9 Sasken Communication Technologies Ltd. 12.15% 10 Spry Resources India Pvt. Ltd. 26.18% AVERAGE 22.63% 15. The Ld.TPO restricted the working capital adjustment at 0.36%, however while computing the ALP. The Ld.TPO proposed an adjustment at Rs.2,37,82,190/-. On receipt of the order under section 92CA of the Act, the Ld.AO passed the draft assessment order confirming the addition as per the order under section 92 CA of the Act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) did not allow any relief to the assessee on the grounds raised. Page 17 ITA Nos. 3088 & 3089/Bang/2018 Aggrieved by the order of the Ld.CIT(A), the assessee preferred appeal before this Tribunal. 16. It has been submitted by the Ld.AR that assessee seeks to address Ground 6 read with Additional Ground 6A and Ground 9 for the year under consideration. Based on the above submissions, we dismiss the remaining ground as not pressed. However liberty is granted to assessee to raise the issues as and when the circumstances warrant. Ground No.6 & Additional Ground No.6A: 17. The Ld.AR submitted that Ground no.6 was raised for not applying the upper turnover filter. However, the names of the specific companies that would get excluded by applying the upper turnover filter has not been specified therein. The assessee therefore, raised Additional Ground No.6A, specifying the names of the following companies that is sought to be excluded by applying the upper turnover filter: a) Infosys Ltd. b) Larsen & Toubro Infotech Ltd. c) Mindtree Ltd. d) Persistent Systems Ltd. e) R S Software India Ltd. f) Sasken Communication Technologies Ltd. We have already elaborated on the FAR analysis of the assessee in the preceding paras. It is submitted that there is no change on the functions of the assessee for the year under consideration. Assessee has been catagorised to be a captive service provider Page 18 ITA Nos. 3088 & 3089/Bang/2018 who provides services to its AE only. Assessee is also compensated at Cost plus markup for the services rendered. He submitted that under identical circumstances these comparables have been excluded by various decisions of this Tribunal. 18. Persistant Systems Ltd. The Ld.AR submitted that this company is functionally not similar to assessee as it is engaged in software products, services and technology innovation. The company focuses on next generation technology centred on four main themes- Cloud computing, Analytics, Social enterprise and Enterprise Mobility. Persistent also focuses on establishing a strong IP portfolio and the IP led business of the company saw a significant boost during the year under consideration due to two product acquisitions by its subsidiaries. Further, during the year under consideration, Persistent also concluded a contract to take over IBM's TNPM product road map, which would help the company strengthen its position in relation to the IP led business. The Ld.AR submitted that this company is engaged in product engineering services, platforms and solutions, IP and related business, which is functionally different from assessee's case and it has earned revenue from R&D activities. Persistent Systems Limited also owns intellectual properties. Further, segmental data is not available. It is also to be noted that Persistent Systems Limited is not considered as a comparable by various orders of the Tribunal in the following case of NXP Semiconductor (P.) Ltd. (supra), the Tribunal observed as under:- Page 19 ITA Nos. 3088 & 3089/Bang/2018 "13.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decision cited. We find that a co-ordinate bench of this Tribunal in the assessee's own case (supra) for Assessment Year 2008-09 has held that this company being engaged in product development and product design and analysis service is functionally different from a pure software service provider and therefore excluded it from the list of comparables for software development services; holding as under at para 17.3 of its order:— "17.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that this company i.e. Persistent Systems Ltd., is engaged in product development and product design services while the assessee is a software development services provider. We find that, as submitted by the assessee, the segmental details are not given separately. Therefore, following the principle enunciated in the decision of the Mumbai Tribunal in the case of Telecordia Technologies India Pvt. Ltd. (supra) that in the absence of segmental details/information a company cannot be taken into account for comparability analysis, we hold that this company i.e. Persistent Systems Ltd. ought to be omitted from the set of comparables for the year under consideration. It is ordered accordingly." 13.4.2 Following the decision of the co-ordinate bench of this Tribunal in the assessee's own case (supra) for Assessment Year 2008-09, we direct the TPO to exclude this company from the list of comparables as it is functionally different (viz. being engaged in product development and product design services) from the assessee in the case on hand which is rendering software development services. It is ordered accordingly. " Accordingly, we direct the Ld.TPO to exclude the said company from the list of comparables, with the similar directions given in the above order of the Tribunal (supra). 19. Larsen & Toubro Infotech Ltd The Ld.AR relied on the order of the co-ordinate Bench in the case of NXP India Pvt.Ltd reported in (2019) 116 taxmann.com 421, wherein the Bench followed the decision by coordinate bench in case of Metric Steam Infotech (India) (P.) Ltd. v. Dy. CIT Page 20 ITA Nos. 3088 & 3089/Bang/2018 in IT(TP)A No.1418 & 2735 (Bang.) of 2017, by order dated 27-2- 2019, wherein the Tribunal held as under:— "11. As far as L&T Infotech Ltd. and Persistent Systems 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 Persistent Systems Ltd. was into software products and software solutions and no segmental details were available and therefore the profit margin in the software development services segment could not be compared with the assessee's profit margin. As far as L&T Infotech Ltd. is concerned, the Tribunal vide para 17 of the aforesaid order came to a similar conclusion to hold that L&T Infotech should not be regarded as a comparable company. In the light of judicial precedents which remain uncontroverted, we are of the view that the aforesaid two comparable companies should be excluded from the list of comparable companies. " It was also brought to our notice that in earlier year, Larsen & Toubro Infotech Ltd., has incurred expenditure on "cost of brought out items for resale at Rs.27,10,89,274 for which he drew our attention to the financial statement of Larsen & Toubro Infotech Limited which is absent in the case of present assessee. He also submitted that it has huge intangible assets and brand value in software at Rs.143,61,95,196 and it has intangible asset in the form of business rights to the tune of Rs.153,42,45,196 as shown in the Fixed Assets as on 31.03.2013 of the annual reports. Being so, in our opinion, it cannot be compared with the assessee's case. The Ld.AR also relied on following decision in support, wherein case of a contract service provider like assessee this comparable was excluded:  Applied Materials India Pvt. Ltd. v. DCIT by order dated 13.05.2020 in IT(TP) A No. 2687/Bang/2017 Page 21 ITA Nos. 3088 & 3089/Bang/2018  EMC Software and Services India Pvt. Ltd. v. JCIT (Order dated 18.12.2019 passed in IT(TP)A No. 3375/Bang/2018 for AY 2014-15),  EPAM Systems India (P.) Ltd. v. ACIT [2018] 100 taxmann.com 335. Accordingly, we direct the Ld.TPO to exclude the same from the final list of comparables. 20. Mindtree Ltd. This company was objected to by the Appellant for the reasons that (i) it earns profits on account of brand; (ii) Research and Development activities; and (iii) high turnover. The TPO rejected the contentions of the Appellant, which was affirmed by the DRP holding that the company is engaged in software development activities. In this regard it is submitted that during the financial year 2012- 13, the company announced its new brand identity which would result in generation of profits on account of the brand. It is submitted that the TPO rejected the contention of the Appellant that the new brand image would contribute to the company earning additional profits for the reason that such brand image would benefit the company only in the future years and thus could not be rejected for the current financial year. Further, the DRP rejected the contentions of the Appellant that the expenditure incurred toward R&D activity and high turnover earned by the company would also make it functionally dissimilar. It is also submitted that the company undertakes significant R & D activity and therefore it cannot be compared to the Appellant. The Annual report states that the company was ranked among Page 22 ITA Nos. 3088 & 3089/Bang/2018 leading R&D service providers. Further, the annual report states that the expertise built up by the company through the R&D initiatives has been instrumental in winning some of the customers during the year. The company uses the expertise in the R&D team to provide technology consulting services to some of its customers. The company also owns significant intellectual property valued at Rs. 6.70,00,000/-Reliance in this regard is placed on the decision of this coordinate Tribunal in Applied Materials India Pvt. Ltd. v. DC1T by order dated 13.05.2020 passed by in IT(TP) A No. 2687/Bang/2017 In view of the above, the company cannot be taken as a comparable to the Appellant. The Ld.AR submitted that the turnover of the assessee company during the year was Rs. 94.5 crores and hence it falls under the category of companies having turnover in the range of One crore to 200 crores. However the turnover of the companies sought for exclusion is more than 200 crores. It is submitted by the Ld.AR that these comparables cannot be considered as good comparable companies. In support, the Ld.AR placed his reliance on the decision of by co-ordinate bench of this Tribunal in case of Autodesk India Pvt.Ltd vs.DCIT reported in (2018) 96 taxman.com 263. On the contrary, the Ld.CIT.DR relied on orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 21. We note that coordinate bench of this Tribunal for assessment year 2013-14 in case of Evolving Systems Network (I) Page 23 ITA Nos. 3088 & 3089/Bang/2018 Pvt.Ltd Vs.ACIT reported in (2021) 130 taxman.com212 held as under: “9. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and has been elaborately discussed by this Tribunal in the case of AutodeskIndia (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 263 (Bang. - Trib). The Tribunal in this decision after review of entire case laws on the subject, considered the question, whether companies having turnover more than 200 crores upto 500 crores has to be regarded as one category and those companies cannot be regarded as comparables with companies having turnover 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 framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or f CIT dear relied on orders passed I authority is below luctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT v. Pentair Water IndiaPvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16-9-2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable 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 Page 24 ITA Nos. 3088 & 3089/Bang/2018 rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys 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 the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5-8-2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini IndiaPvt. Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co- ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S.NTT Data (supra), Societe Generale 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 incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, 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 ratio laid down in the case of Genisys Integrating (supra)." 10. Respectfully following the aforesaid decision, we hold that the aforesaid five companies should be excluded from the list of comparable companies. We hold and direct accordingly. The learned DR however pointed out that the Assessee did not raise this issue of turnover filter before AO and raised it before DRP in which the turnover limit of Rs. 1000 crores alone is mentioned. In our opinion, this will not be very material, as the turnover filter of Rs. 200 Page 25 ITA Nos. 3088 & 3089/Bang/2018 crores has been applied in several cases by this Tribunal. The Assessee cannot be denied the right to seek its exclusion before the Tribunal and in this regard the learned counsel for Assessee has rightly placed reliance on the decision of the Special Bench of the Hon'ble Tribunal in the case of Dy. CIT v. Quark Systems (P.) Ltd. [2010] 38 SOT 307 (CHD - Trib.) for the proposition that the Assessee cannot be precluded from seeking exclusion of a company selected by it in its TP study, when the company is otherwise not comparable to the Assessee. We therefore direct exclusion of the aforesaid 5 companies from the list of comparable companies.” 22. Admittedly the turnover of Infosys Ltd., R S Software India Ltd., and Sasken Communication Technologies Ltd are more than 200 crores. Considering the assessee being a captive service provider, aforesaid three companies should be excluded from the list of comparable companies . Accordingly Ground no. 6 & Additional Ground no.6A stands allowed in favour of assessee. 23. Ground No.9: Depreciation on Software cannot be disallowed due to non-deduction of TDS. The Ld.AO disallowed depreciation claimed on the software expenses, which is capitalized by assessee. It is submitted that this issue stands settled by coordinate bench of this Tribunal in following decisions: i. M/s. UKN Properties Pvt. Ltd. vs. DCIT in ITA No. 2012/Bang/2016 by order dated 02.07.2021 ii. M/s. Wintac Ltd. vs. DCIT in ITA No. 834/Bang/2016 by order dated 13.04.2017 iii. Kawasaki Microelectronics Inc. vs. DDIT reported in [2015] 60 taxmann.com 256 (Bangalore-Trib.) It is submitted by the Ld.AR that the Ld.AO failed to appreciate that TDS has been deducted on the software payments and hence the basis of the disallowance was wrong. Page 26 ITA Nos. 3088 & 3089/Bang/2018 The Ld.SR.DR suggested that the issue may be remanded to the Ld.AO for verification. 24. We note that the Ld.CIT(A) given direction to the Ld.AO to verify the TDS payments and allow the payments, which has not been implemented, till date. We direct the Ld.AO to follow the directions of the Ld.CIT(A) in light of the principles laid down by decisions referred to herein above and to consider the claim of assessee in accordance with law. Accordingly this ground raised by the assessee stands allowed for statistical purposes. In the result, appeals filed by assessee stands allowed. Order pronounced in the open court on 25 th March, 2022. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 25 th March, 2022. /MS / Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore