SYMANTEE SOFTWARE SOLUTIONS PRIVATE LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE - 14(3)(2), MUMBAI

ITA 7347/MUM/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5069 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANPREET S DUGGAL
• Keywords: Transfer pricing; Initiation of penalty proceedings
• Section: 271(1)(c); 143(3); 133(6)

Judgement Text

1 ITA 7347/MUM/2017 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI MANISH BORAD (ACCOUNTANT MEMBER) I.T.A. NO. 7347/MUM/2017 (ASSESSMENT YEAR 2013-14) NORTONLIFELOCK SOFTWARE SOLUTIONS PRIVATE LTD. (FORMERLY KNOWN AS SYMANTEC SOFTWARE SOLUTIONS PVT LTD) REGUS BUSINESS CENTER, 9 TH FLOOR, PLATINA G BLOCK, PLOT C59, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI-400 051 PAN : AABCV2624B VS ASST.COMMISSIONER OF INCOME-TAX, CIR.14(3)(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI M.P. LOHIA (AR) RESPONDENT BY SHRI MANPREET S DUGGAL (DR) DATE OF HEARING 12-08-2021 DATE OF PRONOUNCEMENT 27-09-2021 O R D E R PER : SAKTIJIT DEY (JM): THIS IS AN APPEAL BY THE ASSESSEE AGAINST FINAL AS SESSMENT ORDER DATED 31- 10-2017 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2013-14, IN PURSUANCE TO TH E DIRECTIONS OF LEARNED DISPUTE RESOLUTION PANEL (DRP). 2 ITA 7347/MUM/2017 2. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE, ON INSTRUCTION, DID NOT PRESS GROUNDS 1, 4 AND 6. ACCORDINGLY, THESE GROUND S ARE DISMISSED AS NOT PRESSED. 3. IN GROUNDS 2 AND 3, ASSESSEE HAS CHALLENGED REJEC TION/SELECTION OF CERTAIN COMPARABLES. 4. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A RESIDEN T COMPANY AND IS A PART OF SYMENTEC GROUP. AS PER THE FUNCTIONAL PROFILE, ASSE SSEE IS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO THE OVERSEAS SYMEN TEC GROUP ENTITIES. OF COURSE, THE ASSESSEE ALSO PROVIDES VARIOUS OTHER SE RVICES TO THE GROUP ENTITIES, SUCH AS, MARKETING SUPPORT SERVICES, GENERAL AND AD MINISTRATIVE SERVICES, ETC. HOWEVER, PRESENTLY, WE ARE CONCERNED WITH PROVISION OF SOFTWARE DEVELOPMENT SERVICES. IN THE FINANCIAL YEAR RELEVANT TO THE ASS ESSMENT YEAR UNDER DISPUTE, ASSESSEE HAD PROVIDED SOFTWARE DEVELOPMENT SERVICES TO ITS OVERSEAS ASSOCIATED ENTERPRISES (AES) AND EARNED REVENUE OF RS.28,26,79 ,000/-. IN THE TP STUDY REPORT, THE ASSESSEE HAD BENCHMARKED THE TRANSACTION WITH T HE AES BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROF IT LEVEL INDICATOR (PLI). UNDERTAKING SEARCH PROCESS IN THE DATABASE, THE ASS ESSEE HAD SELECTED FIFTEEN COMPANIES AS COMPARABLES WITH AVERAGE MARGIN OF 9.5 1%. SINCE, THE ASSESSEE HAD SHOWN OPERATING MARGIN AT 12.31%, THE TRANSACTION W ITH AES WAS CLAIMED TO BE AT ARMS LENGTH. THE TRANSFER PRICING OFFICER (TPO), H OWEVER, DID NOT FIND THE ASSESSEES BENCHMARKING ACCEPTABLE. AFTER VERIFYING THE DETAILS AND MATERIALS AVAILABLE ON RECORD, HE OBSERVED THAT THREE COMPARA BLES SELECTED BY THE ASSESSEE, VIZ. CAT TECHNOLOGIES LTD, LUCID SOFWARE LTD AND SILVERLINE TECHNOLOGIES LTD ARE HAVING WIDE VARIATIONS IN OPERATING MARGIN OVER THE LAST YEARS. HE WAS OF 3 ITA 7347/MUM/2017 THE VIEW THAT THE FLUCTUATING MARGIN SUGGESTS THE U NSTABLE NATURE OF THE COMPARABLES BUSINESS AND REVENUE. THUS, HE CONCLUD ED THAT THE AFORESAID THREE COMPANIES CANNOT BE TREATED AS COMPARABLES. FURTHER , HE HELD THAT CALIBRE POINT BUSINESS SOLUTIONS LTD CANNOT BE TREATED AS COMPARA BLE AS IT ONLY PROVIDES SOFTWARE SUPPORT SERVICES AND NOT ANY SOFTWARE DEVE LOPMENT. THUS, HE EXCLUDED THESE COMPANIES FROM BEING TREATED AS COMPARABLES. 5. HAVING DONE SO, HE OBSERVED THAT ON ANALYZING TH E ACCEPT/REJECT MATRIX OF THE COMPARABLES CONSIDERED BY THE ASSESSEE, HE FOUN D THAT FOUR COMPANIES, VIZ. ASPIRE INSTRUMENTS (INDIA) LTD, INFOBEAN TECHNOLOGI ES LTD, THIRDWARE SOLUTIONS LTD AND CYBER INFRASTRUCTURE PVT LTD ARE OTHERWISE COMP ARABLE TO THE ASSESSEE. THUS, FINALLY THE TPO SHORTLISTED FOLLOWING TEN COMPANIES AS COMPARABLES WITH ARITHMETIC MEAN OF 21.32%:- S.NO. NAME OF THE COMPANY F.Y. 2012-13 1 AKSHAY SOFTWARE TECHNOLOGIES LIMITED 8.15% 2 ASPIRE SYSTEMS (I) PVT. LTD. 34.94% 3 OG-VAK SOFTWARE & EXPORTS LIMITED 14.58% 4 CIGNITI TECHNOLOGIES LTD 8.70% 5 CYBER INFRASTRUCTURE PVT. LTD 41.70% 6 EVOKE TECHNOLOGIES LIMITED 3.08% 7 INFOBEANS TECHNOLOGIES LTD. 30.04% 8 MAVERIC SYSTEMS LIMITED - 9 PRIYA SOFTWEB SOLUTIONS PVT. LTD. 19.79% 10 THIRDWARE SOLUTIONS LTD 30.92% ARITHMETIC MEAN 21.32% 6. APPLYING THE ARITHMETIC MEAN OF THE COMPARABLES, THE ASSESSING OFFICER DETERMINED THE ALP OF THE TRANSACTION AT RS.32,33,1 6,587/-. THE RESULTANT SHORTFALL OF RS.4,06,37,587/- WAS PROPOSED AS ADJUST MENT TO THE ALP. CHALLENGING 4 ITA 7347/MUM/2017 THE AFORESAID ADJUSTMENT TO THE ALP, ASSESSEE RAISED OBJECTION BEFORE LEARNED DRP; HOWEVER, WITHOUT ANY SUCCESS. 7. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED, THE ASSESSEE DOES NOT WANT TO DISPUTE THE REJECTION OF CALIBRE PO INT BUSINESS SOLUTIONS LTD AND MAVERIC SYSTEMS LTD AS COMPARABLES. FURTHER, HE SUB MITTED, ASSESSEE DOES NOT DISPUTE INCLUSION OF ASPIRE SYSTEMS (I) PVT LTD AS A COMPARABLE. PROCEEDING FURTHER, HE SUBMITTED, CAT TECHNOLOGIES LTD, LUCID SOFTWARE LTD AND SILVERLINE TECHNOLOGIES LTD HAVE BEEN REJECTED AS COMPARABLES O NLY FOR THE REASON THAT THERE IS WIDE VARIATION IN THEIR OPERATING MARGIN O VER THE YEARS. HE SUBMITTED, ONCE THE COMPANIES ARE ACCEPTED TO BE FUNCTIONAL SI MILAR TO THE ASSESSEE, THEY CANNOT BE REJECTED MERELY BECAUSE OF VARIATION IN TH EIR MARGIN. HE SUBMITTED, CAT TECHNOLOGIES HAS BEEN ACCEPTED BY THE TPO HIMSE LF IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2011-12, 2012-13 AND 2015-16. THUS HE SUBMITTED, THERE IS NO JUSTIFIABLE REASON TO EXCLUDE THE COMPANY AS A COMPA RABLE. HE SUBMITTED, LUCID SOFWARE LTD ALSO WAS NOT REJECTED DUE TO ANY FUNCTIO NAL DIFFERENCE. DRAWING OUR ATTENTION TO THE ANNUAL REPORTS OF THE COMPANY, HE SUBMITTED, BOTH THE COMPANIES ARE FUNCTIONALLY SIMILAR TO THE ASSESSEE. AS REGARDS, SILVERLINE TECHNOLOGIES LTD, HE SUBMITTED, IT HAS MADE LOSS IN THE CURRENT YEAR AND IN THE PRECEDING ASSESSMENT YEAR. WHEREAS, IT HAS MADE PRO FIT IN ASSESSMENT YEAR 2011- 12. THEREFORE, IT CANNOT BE TREATED AS A CONSISTENT LOSS MAKING COMPANY. THUS, HE SUBMITTED THAT THESE THREE COMPANIES HAVE TO BE TRE ATED AS COMPARABLES. IN SUPPORT OF HIS CONTENTION, LEARNED COUNSEL RELIED U PON THE FOLLOWING DECISIONS:- 1. PCIT VS HONEYWELL TURBO (I) PVT LTD ITA 877 OF 2016 DT. 04.02.2019 (BOMBAY HIGH COURT) 2. CHRYSCAPITAL INVESTMENT ADVISORS VS DCIT ITA 4 17/2014 DT 27.04.2015 (DELHI HIGH COURT) 5 ITA 7347/MUM/2017 3. M/S NXP INDIA PVT LTD VS DCIT IT (TP) A NO.692 /BANG/2017 DT. 27.04.2020 8. PROCEEDING FURTHER, HE SUBMITTED, INFOBEAN TECHN OLOGIES LTD CANNOT BE CONSIDERED AS COMPARABLE DUE TO FUNCTIONAL DISSIMI LARITY. DRAWING OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY AT PAGE 656 OF THE PAPER BOOK, HE SUBMITTED, WHILE THE ASSESSEE PROVIDES SOFTWARE DEV ELOPMENT SERVICES, THIS COMPANY SELLS SOFTWARE PRODUCT. THEREFORE, IT CANNO T BE TREATED AS COMPARABLE. FURTHER, HE SUBMITTED, THIRDWARE SOLUTIONS LTD CANN OT BE CONSIDERED AS COMPARBLE AS IT ALSO SELLS PRODUCT AND SEGMENTAL IN FORMATION REGARDING REVENUE EARNED AND EXPENDITURE INCURRED IN DIFFERENT SEGMEN TS ARE NOT AVAILABLE. AS REGARDS CYBER INFRASTRUCTURE PVT LTD, LEARNED COUNS EL DRAWING OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPANY SUBMITTED THAT THOUGH THE COMPANY HAS EARNED REVENUE FROM SOFTWARE DEVELOPMENT AS WELL AS BPO SE RVICES; HOWEVER, SEGMENTAL DETAILS ARE NOT AVAILABLE. THUS, HE SUBMITTED, THES E THREE COMPANIES CANNOT BE TREATED AS COMPARABLES. IN SUPPORT, HE RELIED UPON THE FOLLOWING DECISIONS:- 1. M/S EMERSON ELECTRIC COMPANY (INDIA) PVT LTD VS ACI T ITA NO.6098/MUM/2018 & ITA NO.531/MUM/2018 DT. 145.06.2 019 2. M/S PHILIPS INDIA LTD VS ACIT 2489/KOL/2017 DT.04 .04.2018 3. SKILLNET SOLUTIONS INDIA PVT LTD VS DCIT ITA NO.6 570/MUM/2017 DT 24.02.2021 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D, SILVERLINE TCHNOLOGIES LTD CANNOT BE TREATED AS COMPARABLE DUE TO WIDE FLU CTUATION IN ITS MARGIN. HE SUBMITTED, THOUGH IN ASSESSMENT YEAR 2011-12 IT HAS SHOWN PROFIT OF 14.25%, IN SUBSEQUENT TWO ASSESSMENT YEARS IT HAS SHOWN HUGE L OSS. HE SUBMITTED, THE REASON FOR SUCH WIDE VARIATION IN THE PROFIT MARGIN HAS NOT BEEN REASONABLY EXPLAINED BY THE ASSESSEE. THUS, HE SUBMITTED, SILV ERLINE TECHNOLOGIES LTD CANNOT 6 ITA 7347/MUM/2017 BE TREATED AS COMPARABLES. AS REGARDS CAT TECHNOLOG IES LTD AND LUCID SOFTWARE LTD, HE RELIED UPON THE OBSERVATIONS OF THE TPO AND LEARNED DRP. 10. AS REGARDS ASSESSEES CONTENTIONS REGARDING EXC LUSION OF CERTAIN COMPANIES SELECTED BY THE TPO, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED, WHILE UNDERTAKING COMPARATIVE ANALYSIS UNDER TNMM, ONLY B ROAD COMPARABILITY HAS TO BE SEEN. IF FUNCTIONS OF THE COMPARABLES ARE BROAD LY SIMILAR TO THE ASSESSEE, THEY CAN BE TREATED AS COMPARABLES. HE SUBMITTED, THOUGH A NUMBER OF COMPANIES CAME OUT IN ASSESSEES SEARCH PROCESS, AS WOULD BE EVIDENT FROM THE TP STUDY REPORT; HOWEVER, THE ASSESSEE DID NOT CONSIDER THEM AS COMPARABLES DUE TO THEIR RELATIVELY HIGH MARGIN. THUS, HE SUBMITTED, THE ASS ESSEE HAS RESORTED TO CHERRY- PICKING. IN THIS CONTEXT, HE SPECIFICALLY REFERRED TO THIRDWARE SOLUTIONS LTD. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, SOFT WARE DEVELOPMENT SERVICE ALSO INCLUDES DEVELOPMENT OF SOFTWARE PRODUCT. THER EFORE, A COMPANY CANNOT BE REJECTED SIMPLY FOR THE REASON THAT IT HAS DEVELOPED A SOFTWARE PRODUCT. AS REGARDS THE DECISIONS RELIED UPON BY THE LEARNED CO UNSEL FOR THE ASSESSEE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, UNLE SS IT IS DEMONSTRATED THAT THE ASSESSEES, IN RELATION TO WHOM THE DECISIONS HA VE BEEN RENDERED, ARE FUNCTIONALLY SIMILAR TO THE PRESENT ASSESSEE, THE D ECISIONS CANNOT BE MADE APPLICABLE. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. UNDISPUTEDLY, CAT TECHNOLOGIES LTD, LUCID SOFTWARE LTD AND SILVERLINE TECHNOLOGIES LTD ARE ASSESSEES COMPARABLES. THE TP O HAS REJECTED THESE COMPARABLES ONLY ON THE REASONING THAT THEY HAVE WI DE VARIATION IN OPERATING MARGIN. ON A PERUSAL OF FACTS ON RECORD, IT IS OBS ERVED THAT CAT TECHNOLOGIES LTD HAS EARNED PROFIT MARGIN OF 4.71% AND 5.11% IN ASSE SSMENT YEARS 2011-12 AND 7 ITA 7347/MUM/2017 2012-13, RESPECTIVELY. WHEREAS, IT HAS A NEGATIVE M ARGIN OF 13.00% IN THE IMPUGNED ASSESSMENT YEAR. THEREFORE, IT CANNOT BE S AID THAT THERE IS WIDE VARIATION IN THE MARGIN. MOREOVER, NEITHER THE TPO NOR LEARNED DRP HAVE DISPUTED THE FACT THAT THE COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSEE. SIMILAR IS THE CASE WITH LUCID SOFTWARE LTD. THOUGH, IN THE PRECEDING TWO ASSESSMENT YEARS IT HAS REPORTED A POSITIVE PROFIT MARGIN, IN THE IMPUGNED ASSESSMENT YEAR IT HAS REPORTED A NEGATIVE MARGIN. HOWEVER, NOTHING H AS BEEN BROUGHT ON RECORD TO DEMONSTRATE THAT THE COMPANY IS NOT FUNCTIONALLY SI MILAR TO THE ASSESSEE. MERELY BECAUSE THE AFORESAID TWO COMPANIES HAVE REPORTED N EGATIVE MARGIN IN THE IMPUGNED ASSESSMENT YEAR, THEY CANNOT BE CONSIDERED AS INCOMPARABLE. IN FACT, IN ASSESSEES OWN CASE IN SUBSEQUENT ASSESSMENT YEA RS CAT TECHNOLOGIES LTD. HAS BEEN ACCEPTED AS A COMPARABLE. FURTHER, IN THE CASE OF NXP (I) PVT LTD VS DCIT (SUPRA), THE CO-ORDINATE BENCH HAS ACCEPTED CAT TEC HNOLOGIES LTD AND LUCID SOFTWARE LTD AS COMPARABLE TO A SOFTWARE DEVELOPMEN T SERVICE PROVIDER. SINCE, THE AFORESAID DECISIONS OF THE CO-ORDINATE BENCH IS FOR THE VERY SAME ASSESSMENT YEAR, WE FOLLOW THE SAME AND DIRECT THE ASSESSING O FFICER TO INCLUDE CAT TECHNOLOGIES LTD AND LUCID SOFTWARE LTD AS COMPARAB LES. 12. AS REGARDS SILVERLINE TECHNOLOGIES LTD, THOUGH, GOING BY THE LEGAL PRINCIPLES, IT CANNOT BE CONSIDERED AS A CONSISTENT LOSS MAKING COMPANY; HOWEVER, WE HAVE OBSERVED ABNORMAL VARIATION IN ITS PROFIT MARGIN IN THE IMMEDIATELY TWO PRECEDING ASSESSMENT YEARS AS WELL AS IN THE CURRENT YEAR. IN ASSESSMENT YEAR 2011-12, IT HAS REPORTED PROFIT MARGIN OF 14.25%. WHEREAS, IN ASSES SMENT YEAR 2012-13 IT HAS REPORTED NEGATIVE MARGIN OF (-) 50.61%. IN THE IMPU GNED ASSESSMENT YEAR, THE COMPANY HAS REPORTED NEGATIVE MARGIN OF (-) 39.97%. THUS, THERE IS WIDE VARIATION IN THE MARGIN OF THE COMPANY. FURTHER, IN ASSESSMEN T YEAR 2012-13 AND THE 8 ITA 7347/MUM/2017 IMPUGNED ASSESSMENT YEAR IT HAS REPORTED ABNORMALLY HIGH NEGATIVE MARGIN. WHEREAS, THE ASSESSEE HAS REPORTED A PROFIT MARGIN OF 12.31% IN THE IMPUGNED ASSESSMENT YEAR. AS PER GENERALLY ACCEPTED LEGAL PR INCIPLE, IN MANY CASES COMPARABLES HAVING SUPER NORMAL PROFIT ARE NOT CONS IDERED AS COMPARABLES. REVERSE IS THE SITUATION IN CASE OF SILVERLINE TECH NOLOGIES LTD. COMPARED TO ASSESSEES MARGIN, THIS COMPARABLE HAS SHOWN ABNORM ALLY HIGH NEGATIVE MARGIN IN TWO CONSECUTIVE ASSESSMENT YEARS. THEREFORE, IN OUR CONSIDERED OPINION, IT WILL NOT BE SAFE TO INCLUDE THIS COMPANY AS A COMPARABLE . THEREFORE, WE AGREE WITH THE DECISION OF THE DEPARTMENTAL AUTHORITIES INSOFA R AS SILVERLINE TECHNOLOGIES LTD IS CONCERNED. 13. AS REGARDS INFOBEAN TECHNOLOGIES LTD AND THIRD WARE SOLUTIONS LTD AND CYBER INFRASTRUCTURE LTD ARE CONCERNED, UNDOUBTEDLY , THESE COMPARABLES WERE SELECTED BY THE TPO. AFTER TAKING NOTE OF THE RIVAL CONTENTIONS AND PERUSING MATERIALS ON RECORD, WE FIND THAT AS PER THE INFORM ATION AVAILABLE FROM THE ANNUAL REPORT OF INFOBEAN TECHNOLOGIES LTD IT IS INVOLVED IN SALE OF SOFTWARE PRODUCTS, WHEREAS, THE TRANSACTION OF THE ASSESSEE WITH ITS A E BEING CONSIDERED FOR COMPARABILITY ANALYSIS IS RELATING TO SOFTWARE DEVE LOPMENT SERVICES. IT IS FURTHER EVIDENT FROM THE ANNUAL REPORT OF THE COMPANY, IT I S INTO DIVERSIFIED ACTIVITIES INCLUDING DEVELOPING CUSTOMIZED SOFTWARE, WHEREAS, SEGMENTAL DETAILS RELATING TO VARIOUS SEGMENTS ARE NOT AVAILABLE IN THE ANNUAL RE PORT. CONSIDERING THE AFORESAID ASPECT, THE CO-ORDINATE BENCH IN CASE OF SKILLNET S OLUTIONS PVT LTD VS DCIT (SUPRA) HAS REJECTED THIS COMPANY FROM BEING TREATED AS A CO MPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER. SAME VIEW HAS BEEN EX PRESSED BY THE CO-ORDINATE BENCH IN CASE OF M/S EMERSON ELECTRIC CO PVT LTD VS ACIT (SUPRA). PERTINENTLY, THE AFORESAID DECISIONS OF THE CO-ORDINATE BENCH ARE FO R THE VERY SAME ASSESSMENT 9 ITA 7347/MUM/2017 YEAR. IN VIEW OF THE AFORESAID, WE HOLD THAT INFOB EAN TECHNOLOGIES LTD CANNOT BE CONSIDERED AS A COMPARABLE. 14. AS FAR AS THIRDWARE SOLUTIONS LTD IS CONCERNED, IT IS OBSERVED FROM THE ANNUAL REPORT OF THE COMPANY THAT IT HAS REPORTED S ALES OF SOFTWARE LICENSE. FURTHER, EVEN IF THERE MAY BE REVENUE EARNED FROM S OFTWARE DEVELOPMENT SERVICES; HOWEVER, SEGMENTAL INFORMATION IS NOT AVA ILABLE. CONSIDERING THIS ASPECT, THE CO-ORDINATE BENCH IN A CASE OF M/S EMER SON ELECTRIC CO PVT LTD VS ACIT (SUPRA) HAS HELD THAT THIS COMPANY CANNOT BE CONSID ERED AS A COMPARABLE TO A SOFTWARE DEVELOPMENT SERVICE PROVIDER. SIMILAR VIE W HAS BEEN EXPRESSED BY THE CO-ORDINATE BENCH IN CASE OF M/S PHILIPS INDIA LTD VS ACIT (SUPRA). SINCE THE AFORESAID DECISIONS OF THE CO-ORDINATE BENCH ARE FO R THE VERY SAME ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THEM, WE DIRECT THE AS SESSING OFFICER TO EXCLUDE THIRDWARE SOLUTIONS LTD FROM THE LIST OF COMPARABLE S. 15. AS REGARDS CYBER INFRASTRUCTURE PVT. LTD, ON PE RUSAL OF THE ANNUAL REPORT OF THE COMPANY PLACED IN THE PAPER BOOK, WE FIND THAT IT HAS REPORTED REVENUE FROM SOFTWARE DEVELOPMENT SERVICES AS WELL AS BUSINESS P ROCESS OUTSOURCING (BPO) SERVICES. HOWEVER, SEGMENTAL DETAILS RELATING TO TH E REVENUE EARNED ARE NOT DISCERNIBLE FROM THE ANNUAL REPORT. IT IS FURTHER O BSERVED, THE TPO, APART FROM RELYING UPON THE DATA AVAILABLE IN PUBLIC DOMAIN WH ILE INCLUDING THE COMPANY HAS NOT MADE ANY EFFORT TO INDEPENDENTLY ASCERTAIN THE FUNCTIONAL SIMILARITY OR EVEN THE SEGMENT WISE DETAILS BY ISSUING NOTICE UNDER SE CTION 133(6) OF THE ACT. THUS, IN ABSENCE OF SUBSTANTIAL DETAILS/DATA RELATING TO VARIOUS SEGMENTS OF THE COMPARABLES, THEY CANNOT BE INCLUDED IN THE LIST OF COMPARABLES. PERTINENTLY, IN CASE OF EMERSON ELECTRIC CO. INDIA PVT VS ACIT, CYB ER INFRASTRUCTURE PVT. LTD WAS 10 ITA 7347/MUM/2017 EXCLUDED FOR THE VERY SAME REASON. IN VIEW OF THE AFORESAID, WE DIRECT EXCLUSION OF CYBER INFRASTRUCTURE PVT. LTD AS WELL. 16. IN NUTSHELL, THE ASSESSING OFFICER IS DIRECTED TO INCLUDE CAT TECHNOLOGIES LTD AND LUCID SOFTWARE LTD IN THE LIST OF COMPARABLES. FURTHER, HE DIRECTED TO EXCLUDE INFOBEAN TECHNOLOGIES LTD, THIRDWARE SOLUTIONS LTD. AND CYBER INFRASTRUCTURE PVT. LTD FROM THE LIST OF COMPARABLES. 17. IN GROUNDS 5 AND 7 ASSESSEE HAS CHALLENGED THE DENIAL OF WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTEMENT. 18. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUB MITTED THAT THOUGH IN THE TP STUDY REPORT, THE ASSESSEE HAS NOT PROVIDED DETAILE D WORKING OF THE WORKING CAPITAL ADJUSTMENT AND RISK ADJUSTMENT, SINCE, THE T RANSACTION WITH AE WAS FOUND TO BE AT ARMS LENGTH; HOWEVER, THE ASSESSEE HAS RE SERVED ITS RIGHT TO CLAIM SUCH ADJUSTMENT AT A LATER STAGE. HE SUBMITTED, BEFORE TH E TPO, THE ASSESSEE HAD FURNISHED DETAILED WORKING OF WORKING CAPITAL ADJUST MENT AND RISK ADJUSTMENT. HOWEVER, NEITHER THE TPO NOR DRP HAVE CONSIDERED TH EM PROPERLY. 19. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE STRONGLY RELIED UPON THE OBSERVATIONS OF THE TPO AND LEARNED DRP. 20. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND TH AT THE CLAIM OF WORKING CAPITAL ADJUSTMENT HAS BEEN REJECTED BY THE TPO ALLEG ING THAT THE ASSESSEE NEITHER CLAIMED SUCH ADJUSTMENT IN THE TP STUDY REPO RT NOR FURNISHED THE DETAILED WORKING JUSTIFYING THE ADJUSTMENT. WHEREAS, LEARNED D RP REJECTED ASSESSEES CLAIM RELYING UPON THEIR DECISION IN ASSESSMENT YEA R 2012-13. IT IS OBSERVED, IN WRITTEN SUBMISSIONS FILED BEFORE THE ASSESSING OFFI CER, ASSESSEE HAD FURNISHED WORKING OF WORKING CAPITAL ADJUSTMENT. AS IT APPEARS , THE TPO HAS NOT PROPERLY 11 ITA 7347/MUM/2017 LOOKED INTO THE WORKING FURNISHED BY THE ASSESSEE. THOUGH, IN ASSESSMENT YEAR 2012-13, THE DRP HAD REJECTED ASSESSEES CLAIM OF WO RKING CAPITAL ADJUSTMENT; HOWEVER, THE GROUND RAISED BY THE ASSESSEE BEFORE T HE TRIBUNAL ON THE ISSUE BECAME ACADEMIC AS THE ASSESSEE OTHERWISE GOT THE D ESIRED RELIEF. PERTINENTLY, WHILE DECIDING ALLOWABILITY OF WORKING CAPITAL ADJUS TMENT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2005-06, THE TRIBUNAL HAS HELD T HAT SUCH ADJUSTMENT IS ALLOWABLE. IN VIEW OF THE AFORESAID, WE RESTORE THE ISSUE TO THE AO FOR RE- EXAMINING THE WORKING OF WORKING CAPITAL ADJUSTMENT FURNISHED BY THE ASSESSEE AND DECIDE THE ISSUE ACCORDINGLY. INSOFAR AS RISK A DJUSTMENT IS CONCERNED, BOTH THE TPO AND LEARNED DRP HAVE REJECTED ASSESSEES CLAIM A LLEGING THAT NO WORKING OF SUCH ADJUSTMENT HAS BEEN FURNISHED. HOWEVER, IT IS T HE CASE OF THE ASSESSEE THAT SUCH WORKING WAS FURNISHED BOTH, BEFORE THE TPO AND LEARNED DRP. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO EXAMI NE THE WORKING OF RISK ADJUSTMENT FURNISHED BY THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. GROUNDS 5 AND 7 ARE ALLOWED FOR STATISTICAL PURPOSE. 21. GROUND 8 CHALLENGING THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BEING PREMATURE AT THIS STAGE IS DISMISSED. 22. GROUND 9 CHALLENGING LEVY OF INTEREST UNDER SEC TION 234A, 234B, 234C AND 234D BEING CONSEQUENTIAL, DOES NOT REQUIRE ADJUDICAT ION. 23. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON 27/09/2021. SD/- SD/- (MANISH BORAD) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 27/09/2021 PAVANAN 12 ITA 7347/MUM/2017 COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI