M/s EIT Services India Private Limited , Bangalore V. Joint COmmissioner of Income Tax Special Range-2 , Bangalore

ITA 3399/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5085 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 24-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Related party transaction; Transfer pricing; International transaction; Services rendered outside India; Working capital adjustments; Bad and doubtful debts; Set aside
• Section: 271(1)(c); 92C; 234B; 133(6); 13; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.3399/BANG/2018 ASSESSMENT YEAR : 2014-15 EIT SERVICES INDIA PVT. LTD., DIGITAL PARK, 39/40, ELECTRONIC CITY, PHASE-II, HOSUR ROAD, BENGALURU-560 100. PAN AAACD 4078 L VS. THE JT. COMMISSIONER OF INCOME-TAX, SPECIAL RANGE-2, BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA, C.A REVENUE BY : MS. NEERA MALHOTRA, CIT(DR) DATE OF HEARING : 19-08-2021 DATE OF PRONOUNCEMENT : 28-09-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AG AINST ORDER DATED 29/10/2018 PASSED BY THE LD. ACIT CIRCLE 2 (1 ) (2), BANGALORE FOR ASSESSMENT YEAR 2014-15 ON FOLLOWING GROUNDS OF APPEAL: TRANSFER PRICING ADJUSTMENT OF INR 1,65,84,24,000 1. THE ASSESSMENT ORDER DATED 29 OCTOBER 2018 (RECE IVED ON 31 OCTOBER 2018), ISSUED BY THE LEARNED JOINT COMMISSI ONER OF INCOME- TAX, SPECIAL RANGE - 2, BANGALORE ('LEARNED AO'), T HE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL ('HON'BLE D RP') AND THE ORDER PAGE 2 OF 21 ITA NO.3399/BANG/2018 OF THE LEARNED TRANSFER PRICING OFFICER ('LEARNED T PO') ISSUED UNDER SECTION 92CA OF THE ACT ARE NOT IN ACCORDANCE WITH THE LAW, MADE IN VIOLATION OF THE PRINCIPLES OF EQUITY AND NATURAL J USTICE AND ARE CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 2. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ERRE D IN LAW AND ON FACTS IN MAKING TRANSFER PRICING ('TP') ADJU STMENT OF INR 1,65,84,24,000 TO THE RETURNED INCOME OF THE APPELL ANT AND IN HOLDING THAT THE INTERNATIONAL TRANSACTIONS BETWEEN THE APP ELLANT AND ITS ASSOCIATED ENTERPRISES ('AES') WERE NOT AT ARM'S LE NGTH. 3. REJECTION OF TP STUDY OF THE APPELLANT 3.1. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ER RED IN LAW AND ON FACTS BY REJECTING THE TRANSFER PRICING DOCU MENTATION ('TP STUDY') WHICH HAS BEEN PREPARE BY THE APPELLANT WIT H RESPECT TO IT SERVICES SEGMENT, IN THE MANNER CONTEMPLATE UNDER T HE RELEVANT PROVISIONS OF INCOME-TAX ACT, 1961 ('THE ACT') AND THE INCONI TAX RULES, 1962 ('THE RULES'). 3.2. THE HON'BLE DRIP AND THE LEARNED AO/TPO HAVE E RRED IN LAW IN STATING THAT THE DATA USED IN COMPUTATION OF THE AL P IS 'NOT RELIABLE OR CORRECT', UNDER SECTION 92C(3) OF THE ACT. 3.3. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED, IN LAW AND ON FACTS IN HOLDING THAT THE TRANSACTIONS BETWE EN THE APPELLANT AND ITS AE WERE NOT AT ALP AS DEFINED UNDER SECTION 92F(II) OF THE ACT AND UPHOLDING THE ADJUSTMENT TO THE TP MADE BY THE LEARNED TPO. 4. ERRONEOUS COMPUTATION OF THE OPERATING PROFIT MA RGINS 4.1. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ER RED IN LAW AND ON FACTS BY IGNORING THE DETAILED SUBMISSION OF THE APPELLANT TO CONSIDER 'MISCELLANEOUS INCOME' AND 'PROVISION WRIT TEN BACK' AS OPERATING IN NATURE IN COMPUTING THE MARGIN OF APPE LLANT AND HAS PASSED THE ORDER TREATING THE SAME AS NON-OPERATING WITHOUT GIVING ADEQUATE REASONS. 4.2. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ER RED IN LAW AND ON FACTS BY IGNORING THE DETAILED SUBMISSION OF THE APPELLANT TO CONSIDER 'PROVISION FOR DOUBTFUL DEBTS' AS OPERATIN G IN NATURE IN COMPUTING THE MARGIN OF COMPARABLE COMPANIES AND HA S PASSED THE TP ORDER TREATING THE SAME AS 'NON-OPERATING' WITHO UT PROVIDING ADEQUATE REASONS. 5. USE OF MULTIPLE YEAR DATA 5.1. THE HON'BLE DRP AND THE LEARNED TPO HAVE ERRED IN REJECTING THE USE OF PREVIOUS TWO YEARS OF DATA USED BY THE APPEL LANT IN THE TP PAGE 3 OF 21 ITA NO.3399/BANG/2018 STUDY DESPITE RULE L0B(4) OF THE RULES PROVIDING FO R THE USE OF SUCH DATA AND SELECTED SINGLE YEAR DATA OF THE COMPANIES FOR THE YEAR ENDED MARCH 31, 2014 IN DETERMINING THE ALP. 5.2. WITH REGARD TO THE USE OF CONTEMPORANEOUS DATA , THE HON'BLE DRP AND THE LEARNED TPO HAVE ERRED IN NOT ACCEPTING THE SUBMISSION OF THE APPELLANT THAT AT THE TIME OF PREPARATION OF TP STU DY THE LATEST AVAILABLE DATA WAS CONSIDERED FOR THE COMPARABILITY ANALYSIS. 5.3. THE HON'BLE DRP AND THE LEARNED TPO NOT APPREC IATED THE FACT THAT IF THE PROPOSED APPROACH OF USING THE MARGINS OF COMPARABLE COMPANIES DURING THE FY 2013-14 IS ADOPTED, WHICH W AS NOT AVAILABLE TO THE APPELLANT DURING THE TP STUDY REQUIREMENTS, THEN IT MAY LEAD TO AN ANOMALY THAT COULD NEVER HAVE BEEN INTENDED BY T HE LEGISLATURE. 5.4. THE HON'BLE DRP AND THE LEARNED TPO HAVE ERRED IN NOT ACCEPTING THE FACT THAT CURRENT YEAR DATA WERE NOT AVAILABLE IN THE PUBLIC DOMAIN TO CALCULATE THE MARGINS OF COMPARABLE COMPANIES AT THE TIME OF PREPARATION OF TP STUDY. 6. USE OF DIFFERENT FY ENDING 6.1. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ER RED IN REJECTING COMPANIES HAVING DIFFERENT FY ENDING OR WHOSE DATA DOES NOT FALL WITHIN THE 12 MONTH PERIOD OF 1 APRIL 2013 TO 31 MA RCH 2014. 6.2. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE FA ILED TO APPRECIATE THAT DISREGARDING COMPANIES THAT HAVE A FY ENDING OTHER THAN MARCH, 2014 WOULD LEAD TO HAVING A LIMITED SET OF COMPARABLE COMPANIES AND WOULD HAVE BEARING ON THE COMPARABILI TY ANALYSIS. 6.3. THE HON'BLE DRP AND THE LEARNED AO/TPO HAVE ER RED IN REJECTING CERTAIN COMPARABLE COMPANIES BASED ON THE AFOREMENTIONED CRITERIA. 1. R SYSTEMS INTERNATIONAL LIMITED; AND 2. HELIOS AND MATHESON INFORMATION TECHNOLOGY LIMIT ED. 7. EMPLOYEE COST FILTER 7.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN REJECTING THE COMPARABLE COMPANIES HAVING RATIO OF EMPLOYEE COST TO SALES LESS THAN 25 PERCENT. 8. EXPORT SALES FILTER 8.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN LAW AND FACTS IN APPLYING THE THRESHOLD LIMIT OF 75 PERCENT IN RESPECT OF EXPORT SALES MADE BY THE COMPARABLE COMPANIES. PAGE 4 OF 21 ITA NO.3399/BANG/2018 9. COMPANIES SOUGHT BY THE APPELLANT FOR EXCLUSION 9.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN LAW AND ON FACTS, IN DETERMINING THE ALP BASED ON FOLLOWING COMPANIES WHICH ARE NOT COMPARABLE TO THE APPELLANT DUE TO VARIOUS FACTORS SUCH AS FUNCTIONALLY DISSIMILAR, PRODUCT / INTANGIBLE LED R EVENUES, INADEQUATE FINANCIAL INFORMATION, NON-AVAILABILITY OF SEGMENTA L FINANCIALS, ENGAGED IN R&D, ETC, WITHOUT CONSIDERING THE DETAILED SUBMI SSIONS OF THE APPELLANT: 1. INFOSYS LIMITED; 2. LARSEN &TOUBRO INFOTECH LIMITED; 3. MINDTREE LIMITED; 4. PERSISTENT SYSTEMS LIMITED; AND 5. THIRDWARE SOLUTION LIMITED. 10. COMPANIES SOUGHT BY THE APPELLANT FOR INCLUSION 10.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN LAW AND ON FACTS IN REJECTING THE FOLLOWING COMPARABLE COMPANIES OF THE APPELLANT FROM ITS TP STUDY AND THE COMPANIES SOUGH T FOR INCLUSION BEFORE THE LEARNED TPO STATING VARIED REASONS LIKE FUNCTIONALLY DIFFERENT, DATA NOT AVAILABLE, DIVERSIFIED ACTIVITI ES, FAILS LEARNED TPO'S FILTER WITHOUT CONSIDERING THE DETAILED SUBMISSION OF THE APPELLANT PROVIDED: TP STUDY COMPARABLE: 1. AKSHAY SOFTWARE TECHNOLOGIES LIMITED; 2. R SYSTEMS INTERNATIONAL LIMITED; 3. HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED ; AND 4. SASKEN COMMUNICATION TECHNOLOGIES LIMITED 5. EVOKE TECHNOLOGIES LIMITED; 6. EXILANT TECHNOLOGIES PRIVATE LIMITED; 7. DAFFODILS SOFTWARE LIMITED; 8. 12T2 INDIA LIMITED; 9. SANKHYA INFOTECH LIMITED; 10. AVANI CIMCON TECHNOLOGIES LIMITED; 11. CAT TECHNOLOGIES LIMITED AND PAGE 5 OF 21 ITA NO.3399/BANG/2018 12. ACROPETAL TECHNOLOGIES LIMITED. 11. INFORMATION GATHERED UNDER SECTION 133(6) OF TH E ACT IS INAPPROPRIATE FOR THE PURPOSES OF DISTURBING THE TP STUDY UNDERTAKEN BY THE APPELLANT 11.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN LAW AND IN FACTS BY GATHERING INFORMATION FROM VARIOUS COMPANIES UNDER SECTION 133(6) OF THE ACT, WHICH WERE NOT AVAILABLE WITH THE APPELLANT AT THE TIME OF PREPARING ITS TP STUDY. 11.2. THE HON'BLE DRP AND THE LEARNED AO / IPO HAVE ERRED IN LAW BY RELYING UPON THE INFORMATION NOT AVAILABLE IN PUBLI C DOMAIN WHILE CARRYING OUT THE BENCHMARKING ANALYSIS UNDER THE AC T. 11.3. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN LAW AND ON FACTS BY MISINTERPRETING THE ORGANIZATION FO R ECONOMIC COOPERATION AND DEVELOPMENT ('OECD') GUIDELINES IN THE CONTEXT OF USE OF CONFIDENTIAL INFORMATION. THE HON'BLE DRP AND LE ARNED TPO HAVE ERRED IN LAW BY ADOPTING THE COMPARABLES WHICH WERE REJECTED BY THE APPELLANT ON ACCOUNT OF NON-AVAILABILITY OF ADEQUAT E INFORMATION IN PUBLIC DOMAIN. 12. NOT GRANTING OF WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT 12.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE DENIED THE BENEFIT OF WORKING CAPITAL ADJUSTMENT WITHOUT CONSI DERING THE LAW THAT APPROPRIATE ADJUSTMENTS ARE TO BE MADE TO ACCOUNT F OR THE DIFFERENCES IN THE CONTROLLED AND UNCONTROLLED TRANSACTION WHIC H COULD AFFECT THE PRICES OF CHARGED / PROFITABILITY IN OPEN MARKET CO NDITIONS AND THEREBY IGNORING THE PROVISIONS OF RULE 108(3) OF THE RULES . FURTHER, THE HON'BLE DRP AND THE LEARNED AO / TPO HAS ERRED IN L AW AND ON FACTS IN IGNORING THE TRANSFER PRICING GUIDANCE ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ('ICAI'), 2017, PRIN CIPLES OF TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AN D TAX ADMINISTRATION ISSUED IN JULY 2017 ISSUED BY OECD A ND UNITED NATIONS ('UN') PRACTICE MANUAL FOR DEVELOPING COUNT RIES MODEL CONVENTION. 12.2. THE HON'BLE DRP AND THE LEARNED AO / TPU HAVE ERRED IN LAW AND FACTS IN NOT PROVIDING FOR WORKING CAPITAL ADJU STMENT BY ERRONEOUSLY STATING THAT APPELLANT FAILED TO DEMONS TRATE THE WORKING CAPITAL DIFFERENCES HAD IMPACTED THE APPELLANT'S PR OFITS WITHOUT CONSIDERING THE DETAILED SUBMISSION OF APPELLANT DE MONSTRATING WITH COMPUTATION THE IMPACT OF SUCH DIFFERENCES ON PROFI TS OF COMPARABLE COMPANIES PAGE 6 OF 21 ITA NO.3399/BANG/2018 12.3. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN NOT APPRECIATING THAT THE APPELLANT, BEING A CAPTIVE SE RVICE PROVIDER OPERATES AT LOWER RISK LEVELS AS COMPARED TO COMPAR ABLE COMPANIES, WHICH CARRY HIGHER RISKS AND ACCORDINGLY ERRED IN N OT GRANTING APPROPRIATE RISK ADJUSTMENTS TO THE MARGINS OF THE COMPARABLE COMPANIES. 12.4. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED IN CONCLUDING THAT THERE EXISTS A SINGLE CUSTOMER RISK AND THAT SUCH A RISK NULLIFIES ANY RISK ADJUSTMENT THAT COULD BE PROVIDE D. FURTHER, THE LEARNED AU / TPO HAS ERRED IN CONCLUDING THAT THERE IS NO RELIABLE METHOD TO COMPUTE THE RISK ADJUSTMENT. 13. NOT PROVIDING FOR ECONOMIC ADJUSTMENT FOR HIGH FOREIGN EXCHANGE FLUCTUATIONS 13.1. THE HON'BLE DP.P AND THE LEARNED AO / TPO HAV E ERRED IN LAW AND IN FACTS IN NOT CARRYING OUT ECONOMIC ADJUSTMEN T ON ACCOUNT OF FOREIGN CURRENCY FLUCTUATIONS TO THE MARGINS EARNED BY COMPARABLE COMPANIES' VIS--VIS THAT OF THE APPELLANT WHICH IS IMMUNE FROM FOREX RISK, BEING A CAPTIVE SERVICE PROVIDER. 14. OTHER TP RELATED GROUNDS 14.1. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE FAILED TO APPRECIATE THE APPELLANT'S COMMERCIAL JUDGMENT ABOU T THE APPLICATION OF ARM'S LENGTH PRINCIPLE WHICH IS TIED TO THE BUSI NESS REALITIES. 14.2. THE HON'BLE DRP AND THE LEARNED AU / TPO HAVE ERRED IN LAW AND ON FACTS, IN MAKING SEVERAL OBSERVATIONS AND FI NDINGS WHICH ARE BASED ON INCORRECT INTERPRETATION OF LAW AND CONTRA RY TO FACTS OF THE CASE. 14.3. THE HON'BLE DRP AND THE LEARNED AO / TPO HAVE ERRED BY NOT CARRYING OUT THE DETERMINATION OF ALP AS REQUIRED U NDER SECTION 92C OF THE ACT READ WITH RULE 10U OF THE RULES. 15. OTHER MATTERS A. THE LEARNED AO HAS ERRED IN LAW IN COMPUTING INT EREST UNDER SECTION 234B OF THE ACT AT RS.30,25,19,250/- B. THE LEARNED AO HAS ERRED, IN LAW AND ON FACTS, I N INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS, AT ANY TIME BEFORE OR AT T HE TIME OF HEARING OF THE APPEAL. EACH OF THE ABOVE OBJECTIONS IS INDE PENDENT AND WITHOUT PREJUDICE TO THE OTHER GROUNDS PREFERRED BY THE APP ELLANT. PAGE 7 OF 21 ITA NO.3399/BANG/2018 BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF SOFTWARE DEVELOPMENT, TECHNICAL SERVICES AND OTHER RELATED SERVICES. IT FILED ITS RETURN OF INCOME FOR YEAR UN DER CONSIDERATION ON 27/11/2014 DECLARING INCOME OF RS.6,55,63,26,840/-. THE CASE WAS SELECTED FOR SCRU TINY AND NOTICE UNDER SECTION 143 (2) OF THE ALP WAS ISSUED ALONG WITH 142 (1) OF THE ACT. ON RECEIPT OF NOTICES, REPRESEN TATIVES OF ASSESSEE APPEARED BEFORE THE LD.AO AND, FILED REQUI SITE DETAILS AS CALLED FOR. ON VERIFICATION OF THE DETAI LS, THE LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTIO N EXCEEDING RS. 15 CRORES. HE THUS REFERRED THE CASE TO THE LD.TPO. 2.1 UPON RECEIPT OF THE REFERENCE UNDER SECTION 92C A OF THE ACT, THE LD.TPO CALLED UPON ASSESSEE TO FILE RE QUISITE DETAILS IN RESPECT OF INTERNATIONAL TRANSACTION IN FORM 3 CEB. THE LD.TPO OBSERVED THAT ASSESSEE HAD FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISE. RECEIVED/ RECEIVABLE AS PER FORM NO. 3CEB AS PER TP STUDY PROVISION OF IT 24.802,117,443 24,802,117,443 PROVISION OF !TES 5,410,376,393 5,410,376,393 PAID/ PAYABLE AS PER FORM NO. 3CEB AS PER TP STUDY . PURCHASE OF COMPUTER SOFTWARE, CONSUMABLES AND FIXED ASSETS 1,095,002,215 1,095,002,215 REIMBURSEMENT OF EXPENSES 450,882,406 450,882,406 2.2 THE LD.TPO OBSERVED THAT, THE ASSESSEE USED 6 COMPARABLES OF SOFTWARE DEVELOPMENT SERVICE SEGMENT BY PAGE 8 OF 21 ITA NO.3399/BANG/2018 USING TNMM AS MOST APPROPRIATE METHOD AND OP/OC AS PLI HAVING ARITHMETIC MEAN OF 11.02%. ASSESSEE COMPUTED ITS OWN MARGIN TO BE AT 21.14% FOR SOFTWARE DEVELOPMENT SERVICE SEGMENT AND THUS HELD ITS TRANSACTION TO BE AT ARMS LENGTH. COMPARABLES SELECTED BY ASSESSEE FOR SOFTWARE DEVEL OPMENT SERVICE SEGMENT ARE AS UNDER: S.NO. COMPARABLES MARGIN 1. AKSHAY SOFTWARE TECHNOLOGIES LTD. 5.97% 2. CG-VAK SOFTWARE AND EXPORTS LTD. 2.61% 3. HALLIOS AND MATHESON INFORMATION TECHNOLOGY LTD. 18.16% 4. R.S.SOFTWARE (INDIA) LTD. 24.23% 5. SASKEN COMMUNICATIONS TECH LTD. 21.01% 6. R.S.SYSTEMS INTERNATIONAL LTD. 13.58% AVERAGE MARGIN 11.02% 2.3 THE TPO ISSUED SHOW CAUSE NOTICE BY REJECTING T HE TRANSFER PRICING STUDY OF ASSESSEE UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. THE LD.TPO APPLIED CER TAIN FILTERS AND FINALISED FOLLOWING 6 COMPARABLES WITH AN AVERAGE MARGIN OF 30.29%: PAGE 9 OF 21 ITA NO.3399/BANG/2018 SL NO. COMPARABLES MARGIN 1 INFOSYS B P 0 LTD. 27.43% 2 MICROGENETIC SYSTEMS LTD. _ 18.06% 3 MICROLAND LTD. 20.07% 4 ECLERX SERVICES LTD. 70.26% 5 B N R UDYOG LTD. (SEG) 24.85% 6 CROSSDOMAIN SOLUTIONS PVT LTD 21.05% AVERAGE MARGIN 30.29% 2.4 THE LD.TPO ALSO REJECTED THE WORKING CAPITAL ADJUSTMENT IN RESPECT OF THE COMPARABLES. HE THUS P ROPOSED AN ADJUSTMENT OF RS.200,81,52,000/-, BEING SHORTFAL L UNDER SECTION 92CA OF THE ACT 2.5 THE LD.TPO FOUND ITES SEGMENT TO BE AT ARMS LEN GTH AND THEREFORE NO ADJUSTMENT WAS PROPOSED. 2.6 ON RECEIPT OF THE TRANSFER PRICING ORDER, THE L D. AO PASSED DRAFT ASSESSMENT ORDER BY MAKING AN ADDITION IN THE HANDS OF ASSESSEE EQUAL TO THE PROPOSED ADJUSTMENT UNDER SECTION 92CA OF THE ACT. 2.7 AGAINST THE DRAFT ASSESSMENT ORDER ASSESSEE PR EFERRED APPEAL BEFORE THE DRP IN RESPECT OF THE COMPARABLES OBJECTED BY ASSESSEE. THE DRP REJECTED ALL THE OBJECTIONS. IT ALSO REJECTED ADDITIONAL COMPARABLES SOUGHT FOR INCLUSIO N BY ASSESSEE. HOWEVER THE DRP DIRECTED THE LD.AO TO COM PUTE THE WORKING CAPITAL ADJUSTMENT. PAGE 10 OF 21 ITA NO.3399/BANG/2018 2.8 ON RECEIPT OF THE DRP DIRECTIONS, THE LD.AO PAS SED FINAL ASSESSMENT ORDER MAKING ADDITION AT RS.165,84,24,000/-. 2.9 AGGRIEVED BY THE FINAL ASSESSMENT ORDER PASSED, ASSESSEE IS IN APPEAL BEFORE US NOW. 2.10 AT THE OUTSET THE LD.AR SUBMITTED THAT AMONGST THE GROUNDS FILED, ASSESSEE IS SEEKING EXCLUSION OF 4 C OMPARABLES ALLEGED IN GROUND 9.1 AND 1 COMPARABLE IN GROUND 10 .1 FOR INCLUSION. 2.11 IT HAS BEEN SUBMITTED BY THE LD.AR THAT, ASSES SEE ALSO SEEKS DIRECTIONS RESPECT OF CONSIDERING THE FOREIGN EXCHANGE FLUCTUATION TO BE AN OPERATING INCOME FOR COMPUTING WORKING CAPITAL ADJUSTMENT. 2.12 EXCEPT FOR THESE GROUNDS, ASSESSEE DO NOT WISH TO ARGUE ANY OTHER GROUNDS. ACCORDINGLY ALL OTHER GROUNDS STANDS DISMISSED AS N OT PRESSED. 2.13 BEFORE WE UNDERTAKE THE COMPARABILITY ANALYSIS , IT IS SINE QUA NON TO UNDERSTAND THE FUNCTIONS PERFORMED, ASSETS OWNED AND RISKS ASSUMED BY ASSESSEE UNDER THIS SEGM ENT. FUNCTIONS PERFORMED: 2.14 IN THE TP STUDY IT HAS BEEN SUBMITTED THAT ASS ESSEE WAS FORMERLY KNOWN AS HEWLETT PACKARD GLOBAL SOFT P VT.LTD., PAGE 11 OF 21 ITA NO.3399/BANG/2018 AND IS A PART OF HEWLETT PACKARD GROUP. IT HAS BEEN SUBMITTED THAT ASSESSEE RENDERS APPLICATION DEVELOPMENT SERVI CES, MAINTENANCE SUPPORT SERVICES AND NETWORK MANAGEMENT SERVICES TO ITS AES AND IS INVOLVED IN ONLY PERFOR MING CODING QUALITY ASSURANCE/TESTING AND DOCUMENTATION AND LOCALISATION ON BEHALF OF ITS AES. ASSESSEE ALSO P ROVIDES POST IMPLEMENTATION SUPPORT AND MAINTENANCE. ASSETS OWNED: 2.15 THE ASSESSEE DO NOT OWN INTANGIBLE ASSETS EXCE PT FOR TANGIBLE ASSETS LIKE COMPUTERS OFFICE EQUIPMENTS FU RNITURE FIXTURES ETC. RISK ASSUMED: 2.16 EXCEPT FOR FOREIGN EXCHANGE RISK, ASSESSEE DO NOT UNDERTAKE ANY OTHER RISK IN PERFORMING ITS ACTIVITI ES FOR ITS AES. 2.17 ASSESSEE HAS BEEN COMPENSATED ON COST PLUS BAS IS FOR ALL DIRECT AND INDIRECT COST OF OPERATION. 2.18 BASED ON THE ABOVE BE CHARACTERISED TO BE A CA PTIVE SERVICE PROVIDER THAT RENDERED SERVICES ONLY TO ITS ASSOCIATED ENTERPRISES. GROUND NO. 9.1 3. THE ASSESSEE SEEKS EXCLUSION OF FOLLOWING 4 COMPARABLES: PAGE 12 OF 21 ITA NO.3399/BANG/2018 INFOSYS LTD. LARSEN AND TOUBRO INFOTECH LTD. PERSISTENT SYSTEMS LTD. THIRDWARE SOLUTIONS LTD. 3.1 THE LD.AR SUBMITTED ALL THESE COMPARABLES HAVE BEEN CONSIDERED BY COORDINATE BENCH OF THIS TRIBUNAL FOR SAME ASSESSMENT YEAR IN GOLDMAN SACH SERVICES PVT.LTD VS.JCIT REPORTED IN (2020) 115 TAXMANN.COM 286 . THE LD.AR SUBMITTED THAT ASSESSEE BEFORE COORDINATE BENCH WAS ALSO A CAPTIVE SERVICE PROVIDER AND WAS ONLY CATERING TO I TS AES UNDER SOFTWARE DEVELOPMENT SERVICE SEGMENT. HE SUBM ITTED THAT THESE COMPARABLES WERE EXCLUDED BY COORDINATE BENCH OF THIS TRIBUNAL BY CONSIDERING VARIOUS ASPECTS OF ANN UAL REPORTS. 3.2 ON THE CONTRARY THE LD.CIT.DR PLACED RELIANCE O N ORDERS PASSED BY AUTHORITIES BELOW. 3.3 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 3.4 WE NOTE THAT THIS TRIBUNAL IN CASE OF GOLDMAN SACH SERVICES PVT.LTD VS.JCIT (SUPRA) OBSERVED AS UNDER: 5.1.1 INFOSYS LTD: THIS COMPARABLE WAS UPHELD BY AUTHORITIES BELOW AND HAS BEEN OBJECTED BY ASSESSEE FOR ITS INCLUSION. LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF ASSESSEE A S IT IS ENGAGED IN PROVIDING DIVERSIFY ACTIVITIES LIKE BUSINESS CONSUL TING, TECHNOLOGY, PAGE 13 OF 21 ITA NO.3399/BANG/2018 ENGINEERING AND OUTSOURCING SERVICES. IT HAS BEEN S UBMITTED THAT THIS COMPANY IS A MARKET LEADER IN SOFTWARE DEVELOPMENT SEGMENT AND PROVIDES IP-BASED SOLUTIONS. IT HAS ALSO BEEN SUBMI TTED THAT THIS COMPANY OWNS HUGE INTELLECTUAL PROPERTIES AND REVENUES FROM LICENSING OF SOFTWARE PRODUCTS WHICH IS NOT AT ALL AKIN TO THE FUNCTIONS PERFORMED AND ASSETS OWNED BY ASSESSEE. LD.AR SUBMITTED THAT, THIS COMPA NY IS A HUGE BRAND VALUE AND EXPENSES OF BRAND BUILDING IS HIGH. REFER RING TO PAGE 1860 OF PAPER BOOK VOLUME 3 LD.AR SUBMITTED THAT THIS COMPA NY OWNS PROD AND ARE ALSO INVOLVED IN RESEARCH AND DEVELOPMENT ACTIV ITIES. LD. CIT DR PLACED RELIANCE UPON ORDERS OF AUTHORITI ES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. FROM THE ANNUAL REPORT OF THIS COMPANY PLACED IN TH E PAPER BOOK RELIED UPON BY LD.AR, IT IS OBSERVED THAT THIS COMPANY IS NOT COMPARABLE TO THE PROFILE OF ASSESSEE. FURTHER IT IS AN ACCEPTED POSI TION THAT THIS COMPANY IS A GIANT RISK-TAKING COMPANY AND IS ENGAGED IN DEVEL OPMENT AND SALE OF SOFTWARE PRODUCTS AND OWN INTANGIBLE ASSETS. UNDER SUCH CIRCUMSTANCES WE DEEM IT FIT AND PROPER TO EXCLUDE THIS COMPARABL E FROM THE FINALIST. ACCORDINGLY LD. AO/TPO IS DIRECTED TO EXCLUDE THIS COMPANY. 5.1.2. LARSEN AND TOUBRO INFOTECH LTD THIS COMPARABLE WAS UPHELD BY AUTHORITIES BELOW AND HAS BEEN OBJECTED BY ASSESSEE FOR ITS INCLUSION. LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY NOT COMPARABLE WITH THAT OF ASSESSEE A ND IS ENGAGED IN PROVIDING CONSULTANCY AND TESTING SERVICES. FURTHER IT HAS BEEN SUBMITTED THAT THERE IS NO SEGMENTAL INFORMATION AVAILABLE IN THE ANNUAL REPORTS OF THIS COMPANY. LD.AR SUBMITTED THAT THIS COMPANY OWN S ITS OWN BRAND AND HAVE PRODUCTS AND ARE ENGAGED IN TRADING ACTIVITY. THIS COMPANY ALSO HAS R&D SERVICES AND PRESENCE OF HUGE INTANGIBLES AND B RANDS. ON THE CONTRARY, LD.CIT DR SUBMITTED THAT, THIS COM PANY SHOULD BE REMANDED BY FOLLOWING THE VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT C ONSULTANTS (P) LTD. VS DCIT REPORTED IN (2019) 101 TAXMANN.COM 294. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. LD.CIT DR PLACED RELIANCE ON DECISION OF CGI INFORM ATION SYSTEMS AND MANAGEMENT CONSULTANTS (P) LTD. VS DCIT (SUPRA), WH EREIN THIS TRIBUNAL OBSERVED AND DECIDED AS UNDER: '9. IN RESPECT OF THE APPLICABILITY OF THIS TRIBUNA L ORDER FOR EXCLUSION OF LARSEN & TOUBRO INFOTECH LTD, THIS HAS BEEN SUBM ITTED BY LD. AR OF ASSESSEE IN THE CHART SUBMITTED BEFORE US THAT O N PAGE NO. 698 OF PAGE 14 OF 21 ITA NO.3399/BANG/2018 ANNUAL REPORT PAPER BOOK, THIS COMPANY HAS DEBITED AN AMOUNT OF RS. 27,10,89,274/- AS COST OF BOUGHT-OUT ITEMS FOR RESALE. BUT THIS FACT WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUNAL IN THE CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTER (P.) LTD. (SUPRA). IT HAS ALSO BEEN SUBMITTED THAT ON PAGE NO. 706 OF ANN UAL REPORT PAPER BOOK, THIS HAS BEEN REPORTED THAT THIS COMPAN Y IS ENGAGED IN SALE OF SERVICES TO ITS RELATED PARTIES AND THIS FA CT WAS ALSO NOT BROUGHT TO THE NOTICE OF TRIBUNAL IN CASE OF ADVICE AMERICA SOFTWARE DEVELOPMENT CENTER (P.) LTD. (SUPRA). WHEN WE EXAMI NE PARAS 14 TO 20 OF THIS TRIBUNAL ORDER WHERE THERE IS DISCUSSION REGARDING INCLUSION/EXCLUSION OF LARSEN & TOUBRO INFOTECH LTD , WE FIND THAT THERE IS NO DISCUSSION ON THESE TWO ASPECTS THAT TH IS COMPANY IS HAVING SIGNIFICANT AMOUNT OF COST OF BOUGHT-OUT ITE MS FOR RESALE AND IT IS ENGAGED IN SALE OF SERVICES AND PRODUCTS TO I TS RELATED PARTIES AND HENCE, IN OUR CONSIDERED OPINION, THIS TRIBUNAL ORDER CANNOT BE CONSIDERED AS A BINDING PRECEDENCE BECAUSE THIS TRI BUNAL ORDER IS SILENT ON THESE TWO IMPORTANT ASPECTS AS TO THIS AS PECT THAT THIS COMPANY IS HAVING SIZEABLE AMOUNT OF BOUGHT OUT ITE MS FOR RESALE AND HAVE RELATED PARTY TRANSACTIONS IN RESPECT OF S ALES OF SERVICES AND PRODUCTS. WE ALSO FIND THAT IN THE CASE OF REMA INING THREE TRIBUNAL ORDERS I.E. MICROSOFT RESEARCH LAB INDIA P VT. LTD.'S CASE (SUPRA), WM GLOBAL TECHNOLOGY SERVICES (INDIA) (P.) LTD. (SUPRA) AND IN THE CASE OF TECNOTREE CONVERGENCE PVT. LTD. (SUP RA), THE MATTER WAS REMANDED TO THE TPO FOR FRESH DECISION. HENCE, WE FEEL IT PROPER THAT IN THE PRESENT CASE ALSO, THIS ISSUE SHOULD GO BACK TO THE FILE OF TPO FOR FRESH DECISION AFTER PROVIDING ADEQUATE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE AND WHILE DECIDING THE ISSUE AFRESH, ALL THE AVAILABLE TRIBUNAL ORDERS ON THIS ISSUE SHOULD BE C ONSIDERED BY THE TPO IN PROPER PERSPECTIVE.' IT IS OBSERVED THAT THE DECISION IN CASE OF CGI INF ORMATION SYSTEMS MANAGEMENT CONSULTANTS PVT.LTD VS. DCIT(SUPRA) WAS IN RESPECT OF ASSESSMENT YEAR 2013-14. ON PERUSAL OF ANNUAL REPOR T OF THIS COMPARABLE PLACED AT PAGE 2012 OF PAPER BOOK VOLUME 5, IT IS OBSERVED THAT DURING THE YEAR THIS COMPANY HAS NOT DERIVED ANY REVENUE FROM SALE OF PRODUCTS. THE ONLY REVENUE EAR NED BY THIS COMPARABLE DURING THE RELEVANT YEAR UNDER CONSIDERA TION IS FROM SALE OF SERVICES. IT IS OBSERVED AT PAGE 2022 THAT THIS COMPANY INCURRED OVERSEAS STAFF COSTS AT RS.15,46,46,82,017 /-, REVEALS THAT REVENUE EARNED FROM SOFTWARE SERVICES IS MAINLY FRO M OFFSHORE SERVICES. IN THE PRESENT CASE OF ASSESSEE, THERE IS NO SUCH EXPENSES INCURRED FOR OVERSEAS STAFF COSTS. AT PAGE 2022 OF PAPER BOOK VOLUME 5, IT IS CLEAR THAT EXPORT REVENUE FROM SOFTWARE SE RVICES AMOUNTS TO RS.44,14,84,25,372/- OUT OF GROSS INCOME OF RS.46,4 3,94,03,178/-. IN VIEW OF THE AFORESTATED OBSERVATIONS FOR YEAR UN DER CONSIDERATION, PAGE 15 OF 21 ITA NO.3399/BANG/2018 THE ISSUE OF COMPARABILITY OF THIS COMPANY SHOULD B E EXAMINED BY LD.AO/TPO AFRESH. ACCORDINGLY, WE SET ASIDE THIS COMPARABLE BACK TO L D. AO/TPO. 5.1.3. PERSISTENT SYSTEMS LTD., THIS COMPARABLE WAS INCLUDED BY LD.TPO AND OPPOSED BY ASSESSEE. LD.AR SUBMITTED THAT THIS COMPANY IS FUNCTIONALLY D IFFERENT WITH THAT OF ASSESSEE, AS IT IS INVOLVED IN PROVIDING COMPLETE P RODUCT LIFE CYCLE SERVICE TO ITS CLIENTS. IT HAS BEEN SUBMITTED BY LD.AR THAT TH IS COMPANY SPECIALIZES IN SOFTWARE PRODUCTS, SERVICES AND TECHNOLOGY INNOVATI ONS. HE REFERRED TO THE INFORMATION FURNISHED BY THIS COMPANY UNDER SECTION 133(6), WHICH IS PLACED AT PAGE 3020 OF PAPER BOOK WHEREIN THIS COMP ANY IS IDENTIFIED TO BE CARRYING OUT SERVICES IN TELECOM TO TELECOM AND WIR ELESS CLIENTS, LIFE SCIENCE AND HEALTH CARE, INFRASTRUCTURE AND SYSTEMS. ON THE CONTRARY, LD.CIT DR SUBMITTED THAT, THIS COM PANY SHOULD BE REMANDED BY FOLLOWING THE VIEW TAKEN BY COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF CGI INFORMATION SYSTEMS AND MANAGEMENT C ONSULTANTS (P) LTD. VS DCIT REPORTED IN (2019) 101 TAXMANN.COM 294. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. THE DECISION RELIED UPON BY LD.CIT DR IN CASE OF CG I INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS (P) LTD. VS DCIT HAS NOT C ONSIDERED DETAILS THAT HAS BEEN OBTAINED UNDER 133 (6) IN RESPECT OF THIS COMPANY FOR YEAR UNDER CONSIDERATION. THEREFORE, IN OUR OPINION THIS DECISION CANNOT BE OF ANY HELP TO REVENUE. COMING TO INFORMATION RECEIVED UNDER SECTION 133 (6 ) OF THE ACT, IT IS OBSERVED THAT THIS COMPANY HAS ACQUIRED CERTAIN INT ELLECTUAL PROPERTY PRODUCTS AND GENERATE REVENUE FROM LICENSING AND SU PPORT OF SUCH PRODUCTS. IT IS ALSO OBSERVED THAT THIS COMPANY IS INVOLVED IN THE ENTIRE LIFE- CYCLE OF SOFTWARE DEVELOPMENT WHICH IS NOT SIMILAR TO WHAT ASSESSEE CATERS TO ITS ASSOCIATED ENTERPRISES. ASSESSEE CARRIES OUT ONLY SUCH FUNCTIONS WHICH ARE REQUIRED BY ASSOCIATED ENTERPRISE UNDER I TS SUPERVISION AND GUIDANCE. ACCORDINGLY, WE DIRECT LD. AO/TPO TO EXCLUDE THIS C OMPARABLE FROM THE FINALIST. 5.1.4. THIRDWARE SOLUTIONS LTD THIS COMPARABLE HAS BEEN CONSIDERED BY LD.TPO WHICH HAS BEEN OBJECTED BY ASSESSEE. LD.AR SUBMITS THAT THIS COMPANY IS FUN CTIONALLY DIFFERENT AND EARNED REVENUES FROM EXPORT OF SERVICES, SUBSCRIPTI ON AND TRAINING AND SALE OF LICENSING. LD.AR SUBMITTED THAT THERE ARE N O SEGMENTAL DETAILS IN RESPECT OF THIS COMPARABLE. PAGE 16 OF 21 ITA NO.3399/BANG/2018 LD.CIT DR HOWEVER PLACED RELIANCE UPON DECISION OF HONBLE DELHI HIGH COURT IN CASE OF STERIA INDIA LTD VS DCIT REPORTED IN (2018) 92 TAXMANN.COM 120. SHE SUBMITTED THAT HONABLE DELHI HIGH COURT HELD THIS COMPARABLE TO BE A GOOD COMPANY. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE. FROM THE ANNUAL REPORT OF THIS COMPA NY PLACED AT PAGE 2334-2444, IT IS OBSERVED THAT AT PAGE 2413, SEGMEN T REPORTING OF THIS COMPANY IS SET TO BE COMPRISED OF SOFTWARE DEVELOPM ENT, IMPLEMENTATION AND SUPPORT SERVICES. FURTHER IT HAS BEEN SUBMITTED THEREIN THAT PRIMARY SEGMENT REPORTING IS BASED ON GEOGRAPHICAL AREAS, V IZ DOMESTIC = INDIA (PRODUCTS AND SERVICES) AND INTERNATIONAL = REST OF THE WORLD (EXPORTS- SOFTWARE SERVICES). IT IS ALSO BEEN SUBMITTED THERE IN THAT THIS COMPANY MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR THE REPORTE D SEGMENTS. IN PROFIT AND LOSS ACCOUNT AT PAGE 2431, IT IS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THIS COMPANY EARNED REVENUE FROM SAL E OF PRODUCTS WHEREAS, REVENUE FROM SALE OF SERVICES IS SHOWN TO BE AT NIL. LD.TPO WHILE CONSIDERING THIS COMPARABLE ONLY CONSIDERED F OOTNOTE AT PAGE 2433, WHEREIN BIFURCATIONS OF REVENUE FROM SALE OF PRODUC TS HAS BEEN GIVEN AS; EXPORT OF SOFTWARE SERVICES HAS BEEN RECORDED TO BE AT RS.20194.37, SOFTWARE SERVICES FROM LOCAL UNITS AMOUNTING TO RS. 414.07, REVENUE FROM SUBSCRIPTION AND TRAINING AMOUNTING TO RS.59.32 AND SALE OF LICENSES AMOUNTING TO RS.7.98. WE THEREFORE REJECT THE CONTE NTION OF ASSESSEE THAT SEGMENTAL DETAILS ARE NOT AVAILABLE IN RESPECT OF T HIS COMPARABLE. IN OUR VIEW LD.TPO HAS CONSIDERED THE EXPORT OF SOFTWARE S ERVICE SEGMENT FOR PURPOSES OF COMPARABILITY WITH THAT OF ASSESSEE (RE FER COMPUTATION OF MARGIN FOR THIS COMPARABLE AT PAGE 55 OF ORDER PASS ED BY LD.TPO). RESPECTFULLY FOLLOWING DECISION OF HONBLE DELHI HI GH COURT IN CASE OF STERIA INDIA LTD VS DCIT (SUPRA) WE DO NOT FIND ANY INFIRM ITY IN THE VIEW OF AUTHORITIES BELOW IN INCLUDING THIS COMPANY. ACCORDINGLY, WE UPHOLD THE INCLUSION OF THIS COMPAR ABLE TO THE FINALIST. 3.5 RESPECTFULLY FOLLOWING THE ABOVE VIEW WE DIRECT EXCLUSION OF INFOSYS LTD., PERSISTENT SYSTEMS LTD. WE DIRECT INC LUSION OF HARDWARE SOLUTIONS LTD. AND REMAND LARSEN AND TOUBR O LTD. FOR VERIFICATION AS DIRECTED IN THE PARAGRAPHS HEREINAB OVE. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS P ARTLY ALLOWED. PAGE 17 OF 21 ITA NO.3399/BANG/2018 4. GROUND NO. 10.1 : THE SSESSEE SEEKS INCLUSION OF 1 COMPARABLE BEING I 2 T2 INDIA LTD. WE NOTE THAT THIS TRIBUNAL IN CASE OF GOLDMAN SACH SERVICES PVT.LTD VS.JCIT (SUPRA) OBSERVED AS UNDER: 6.4. I2T2 INDIA LTD LD.AR SUBMITTED THAT AUTHORITIES BELOW REJECTED THI S COMPARABLE ONLY FOR THE REASON THAT DETAILS REGARDING RELATED PARTY TRA NSACTION IN CASE OF THIS COMPANY WAS NOT AVAILABLE. FURTHER IT HAS BEEN OBSE RVED BY AUTHORITIES BELOW THAT THIS COMPANY IS OPERATING IN ITES INDUST RY. LD.AR HOWEVER SUBMITTED THAT THIS COMPANY UNDERTAKE S VARIOUS IT SERVICES, BUT ITS INDIAN COMPANY IS ENGAGED IN UNDE RTAKING SOFTWARE DEVELOPMENT SERVICES IN INDIA IN THE NATURE OF EXEC UTING SOFTWARE PROJECTS IN INDIA. IT IS ALSO SUBMITTED THAT THIS COMPANY UN DERTAKES SOFTWARE CONSULTANCY SERVICES WHICH FORMS A WHEREIN MINISCUL E PART OF THE REVENUE BASE AND THEREFORE IT CAN BE SAID THAT THIS COMPANY IS PREDOMINANTLY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SER VICES. HE PLACED RELIANCE UPON DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF LG SOFT INDIA PVT. LTD., IN ITA (TP) A NO. 3122/BANG/2 018. ON THE CONTRARY LD.CIT DR PLACED RELIANCE UPON ORDE RS OF AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. THE ONLY REASON FOR EXCLUDING THIS COMPARABLE BY TH E AUTHORITIES BELOW IS FOR THE REASON THAT RPT TRANSACTIONS HAVE NOT BEEN REPORTED IN THE ANNUAL REPORT. WE HAVE PERUSED THE DECISION OF THIS TRIBUN AL IN CASE OF LG SOFT INDIA PRIVATE LIMITED (SUPRA) WHEREIN ON SIMILAR RE ASONING LD. TPO HAD EXCLUDED THIS COMPARABLE THEREIN AND THIS TRIBUNAL OBSERVED AS UNDER: 12. WE FIND FORCE IN THE CONTENTIONS OF LD. AR. IF THE ANNUAL REPORT OF THIS COMPANY DOES NOT MENTION ABOUT RELATED PARTY TRANSA CTIONS, THEN THE ASSESSEE CANNOT BE HELD RESPONSIBLE TO PROVE A FACT RELATING TO A 3 RD PARTY, WHICH MAY OR MAY NOT EXIST. WE NOTICE FROM AUDITORS REPORT OF M/S.I2T2 INDIA LTD., THAT THE AUDITOR IN PARAGRAPH 5 (B) OF ANNEXURE TO THE AUDITORS REPORT HAS MENTIONED AS UNDER:- THERE ARE NO TRANSACTIONS THAT ARE MADE ENTERPRISE S EXCEEDING RS. 5 LACS IN RESPECT OF ANY PART WHO IS COVERED UNDER SECTION 301 OF THE ACT DURING THE FINANCIAL YEAR. HENCE, IN THE ABSENCE OF ANY SPECIFIC INFORMATION, THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE ABOVE SAID COM PANY MIGHT NOT HAVE HAD RELATED PARTY TRANSACTIONS DURING THE YEAR UNDE R CONSIDERATION. PAGE 18 OF 21 ITA NO.3399/BANG/2018 ACCORDINGLY WE DO NOT AGREE WITH THE REASONING GIVE N BY LD. DRP FOR EXCLUDING THIS COMPANY AS A COMPARABLE. ACCORDINGLY WE DIRECT THE LD. AO/U.S. INCLUDE THIS COMPANY. IT IS OBSERVED THAT DRP IN PRESENT CASE OBJECTED FO R INCLUSION OF THIS COMPARABLE BECAUSE THIS COMPANY IS OPERATING IN ITE S INDUSTRY. ANNUAL REPORT OF THIS COMPARABLE HAS BEEN PLACED AT PAGE 593 OF PAPER BOOK VOLUME 2. IT IS OBSERVED FUNCTIONALLY IT IS PR OVIDING EXPORT OF SOFTWARE AND SERVICES. ANNUAL REPORT PLACED IN PAPER BOOK D OES NOT CONTAIN FUNCTIONS PERFORMED BY THIS COMPARABLE IN ORDER TO ASCERTAIN WHETHER THIS COMPANY IS RENDERING SWD SERVICES OR NOT. WE THEREF ORE, SET ASIDE THIS ISSUE TO LD.AO/TPO FOR VERIFICATION. LD.AO/TPO SHAL L CALL FOR REQUISITE INFORMATION FROM THIS COMPANY, A COPY OF WHICH SHAL L BE PROVIDED TO ASSESSEE ALSO. COMPARABILITY OF THIS COMPANY WITH ASSESSEE SHALL THEN BE CONSIDERED BY GIVING PROPER OPPORTUNITY TO ASSESSEE . ACCORDINGLY, THIS COMPARABLE IS SET ASIDE TO LD.AO/ TPO. 4.1 RESPECTFULLY FOLLOWING THE ABOVE VIEW WE REMAND THIS COMPARABLE BACK TO LD.AO/TPO FOR DUE VERIFICATION O F FAR OF ASSESSEE WITH THE COMPARABLE AND TO CONSIDER IT IN ACCORDANCE WITH LAW. 4.2 IT HAS BEEN SUBMITTED BY LD.AR THAT WORKING CAP ITAL AND RISK ADJUSTMENT WAS DENIED TO ASSESSEE ON THE GROUN D THAT ASSESSEE FAILED TO DEMONSTRATE SUCH DIFFERENCES COU LD HAVE ANY IMPACT ON ASSESSEE'S PROFIT. IT HAS BEEN SUBMITTED BY LD.AR THAT THE SUBMISSIONS ADVANCED BY ASSESSEE DEMONSTRATING COMPUTATIONAL IMPACT HAS NOT BEEN CONSIDERED BY THE LD.AO/TPO. BEFORE US, LD.AR SUBMITTED THAT IT IS AN ACCEPTED PRINCIPLE UPHELD IN VARIOUS DECISIONS OF THIS TRIBU NAL THAT WORKING CAPITAL ADJUSTMENT SHOULD BE ALLOWED ON ACT UALS. IT HAS BEEN SUBMITTED THAT ALL RELEVANT DETAILS FOR COMPUT ATION OF WORKING CAPITAL ADJUSTMENTS WAS PROVIDED TO THE LD. AO/DRP WHICH WAS NOT CONSIDERED. HE PLACED RELIANCE UPON T HE DECISION PAGE 19 OF 21 ITA NO.3399/BANG/2018 OF COORDINATE BENCH OF THIS TRIBUNAL IN CASE OF HUAWEI TECHNOLOGIES INDIA (P.) LTD . V. JT. CIT [2019] 101 TAXMANN.COM 313 ,WHEREIN IT HAS BEEN HELD THAT THE WORKING CAPITAL HAS TO BE GRANTED IN ACTUAL. 4.3 ON THE CONTRARY, LD.CIT DR PLACED RELIANCE UPON ORDERS PASSED BY AUTHORITIES BELOW. 4.4 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US INCLUDING THE DEC ISION RELIED UPON BY LD.AR IN CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. ( SUPRA ). 4.5 A READING OF RULE 10B(L)(E)( III ) OF THE RULES READ WITH SEC. 92CA OF THE ACT, WOULD CLEARLY SHOWS THAT THE NET P ROFIT MARGIN ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS HAS TO BE ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF A NY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET. 4.6 CHAPTERS I AND III OF OECD TRANSFER PRICING GUI DELINES CONTAIN GUIDELINES ON COMPARABILITY ANALYSES FOR TR ANSFER PRICING PURPOSES. GUIDLINES ON ADJUSTMENTS TO BE PROVIDED I S FOUND IN PARAGRAPHS 3.47-3.54 AND IN THE ANNEX TO CHAPTER II I. THE GUIDELINES MUST BE FOLLOWED FOR COMPUTING ARM'S LEN GTH PRINCIPLE, AND FOR COMPARING COMPARABLE UNCONTROLLED TRANSACTI ONS. PAGE 20 OF 21 ITA NO.3399/BANG/2018 REASONABLY ACCURATE ADJUSTMENTS SHOULD BE MADE TO E LIMINATE EFFECT OF ANY SUCH DIFFERENCES. ACCORDINGLY WE DIRECT LD.AO/TPO TO GRANT WORKING CA PITAL ADJUSTMENT IN ACCORDANCE WITH LAW. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS PARTL Y ALLOWED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPT, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 28 TH SEPT, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 21 OF 21 ITA NO.3399/BANG/2018 DATE INITI AL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -9-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -9-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -9-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -9-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -9-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -9-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -9-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS