M/s Citrix R & D India Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle- 2(1)(1), Bangalore

ITTPA 3134/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7613 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 29-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-01-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 22-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Set aside
• Section: 143(3); 133(6); 10B; 195; 201; 144C; 13; 22; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K.GARODIA, ACCOUNTANT MEMBER IT (TP) A NO. 3134/BANG/2018 ASSESSMENT YEAR : 2014 - 15 CITRIX R&D INDIA PRIVATE LTD., PRESTIGE DYNASTY, GROUND FLOOR, 33/2, ULSOOR ROAD, BANGALORE 560 042. PAN: AABCN 3639C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI SUMEET KHURANA, CA RESPONDENT BY : SHRI PRADEEP KUMAR, CIT(DR ) (ITAT), BENGALURU. DATE OF HEARING : 14.01.2020 DATE OF PRONOUNCEMENT : 29 .01.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE FIN AL ORDER OF ASSESSMENT DATED 25.9.2018 PASSED BY THE DCIT, CIRC LE 2(1)(1), BANGALORE U/S. 143(3) R.W.S. 144C OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REND ERING SOFTWARE DEVELOPMENT SERVICES [HEREINAFTER REFERRED TO AS TH E SWD SERVICES] AND INFORMATION TECHNOLOGY ENABLED SERVICES [ITES]. DU RING THE PREVIOUS YEAR RELEVANT TO AY 2014-15, THE ASSESSEE RENDERED SWD S ERVICES AND ITES TO ITS NON-RESIDENT, ASSOCIATED ENTERPRISE (AE) AND WA S THEREFORE AN INTERNATIONAL TRANSACTION. IN TERMS OF SECTION 92 OF THE ACT, INCOME ARISING FROM AN INTERNATIONAL TRANSACTION HAS TO BE DETERMI NED HAVING REGARD TO IT(TP)A NO.3134/BANG/2018 PAGE 2 OF 21 ARMS LENGTH PRICE [ALP]. IN THIS APPEAL, WE ARE C ONCERNED WITH DETERMINATION OF ALP IN RESPECT OF INTERNATIONAL TR ANSACTION OF RENDERING SWD SERVICES AND ITES. 3. WE SHALL FIRST TAKE UP FOR CONSIDERATION DETERMI NATION OF ALP IN RESPECT OF PROVISION OF SWD SERVICES. AS FAR AS PR OVISION OF SWD SERVICES IS CONCERNED, THE TRANSACTION NET MARGIN METHOD (TN MM) WAS ADOPTED AS THE MOST APPROPRIATE METHOD (MAP) FOR DETERMINING T HE ALP. THE PROFIT LEVEL INDICATOR [PLI] CHOSEN FOR THE PURPOSE OF COM PARISON OF THE ASSESSEES PROFIT MARGIN WITH THE COMPARABLE COMPAN IES WAS OPERATING PROFIT TO OPERATING COST [OP/OC]. THE OP/OC OF TH E ASSESSEE WAS 13.75%. THE ASSESSEE HAD CHOSEN 22 COMPARABLE COMP ANIES IN ITS TP STUDY AND THE AVERAGE ARITHMETIC PROFIT MARGIN OF T HOSE COMPARABLE COMPANIES WAS 10.82%. THE ASSESSEE CLAIMED THAT SI NCE ITS PROFIT MARGIN OF 13.75% WAS MUCH HIGHER THAN THE COMPARABLE COMPA NIES THE PRICE CHARGED IN THE INTERNATIONAL TRANSACTION HAD TO BE REGARDED AS AT ARMS LENGTH. 4. THE TRANSFER PRICING OFFICER (TPO), TO WHOM THE QUESTION OF DETERMINATION OF ALP WAS REFERRED BY THE ASSESSING OFFICER (AO) AS MANDATED BY THE PROVISIONS OF SEC.92CA OF THE ACT, HOWEVER, CHOSE A SET OF 8 COMPARABLE COMPANIES AND THE AVERAGE ARITHMETI C MEAN PROFIT MARGIN OF THOSE 8 COMPARABLE COMPANIES WAS 30.68%. THE DE TAILS IN THIS REGARD ARE AS FOLLOWS:- SL. NO NAME OF TAXPAYER AMOUNTS IN RS. LAKH OR/ SALES OC OP OP/OC (IN %) 1 INFOSYS LTD. 46,91,700 32,77,7 00 11,84, 200 36.13% 2 LARSEN & TOUBRO INFOTECH LTD. 4,54,360 3,64,61 9 89,74 1 24.61% 3 MINDTREE LTD. 2,99,010 2,48,29 0 5,072 20.43% 4 PERSISTENT SYSTEMS LTD. 1,18,412 87,649 3,07,6 25 35.10% 5 R S SOFTWARE (INDIA) LTD. 35,188 28,321 6,867 24. 25% IT(TP)A NO.3134/BANG/2018 PAGE 3 OF 21 6 CIGNITI TECHNOLOGIES LTD. 5,563 4,359 1,204 27.62 % 7 S Q S INDIA B F S I LTD. 20,061 16 ,394 3,667 22.37% 8 THIRDWARE SOLUTION LTD. 19,883 1 3,74 2 6,140 44.68% AVERAGE 29.40% 5. THE TPO APPLYING THE AFORESAID AVERAGE ARITHMET IC MEAN PROFIT MARGIN OF THE COMPARABLE COMPANIES, DETERMINED THE ALP IN THE SWD SERVICES AS FOLLOWS:- 15.4. COMPUTATION OF ARM'S LENGTH PRICE: 15.4.1 THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDI CATORS IS TAKEN AS THE ARM'S LENGTH MARGIN. PLEASE SEE ANNEXURE 'A' FOR DETAILS OF COMPUTATION OF PLI OF THE COMPARABLE. BASED ON THIS , THE ARM'S LENGTH PRICE OF THE SERVICES RENDERED BY THE TAXPAY ER TO ITS AE(S) IS COMPUTED AS UNDER: SWD SEGMENT ARM'S LENGTH MEAN MARGIN ON COST 29.40% OPERATING COST 259,15,79,890 ARM'S LENGTH PRICE(ALP) @ 129.40% OF OPERATING COST 335,35,04,378 PRICE RECEIVED 294,79,88,656 VARIATION IN PRICE 40,55,15,722 3% OF PRICE RECEIVED 8,84,39,660 SHORTFALL BEING ADJUSTMENT 40,55,15,722 15.4.2 THE ABOVE SHORTFALL OF RS. 40,55,15,722/- IS PROPOSED AS TRANSFER PRICING ADJUSTMENT U/S 92CA IN RESPECT OF SOFTWARE DEVELOPMENT SEGMENT OF THE TAXPAYER'S INTE RNATIONAL- TRANSACTIONS. 6. THE TRANSFER PRICING ADJUSTMENT AND CONSEQUENT ADDITION TO THE TOTAL INCOME AS DETERMINED BY THE TPO WAS INCORPORA TED BY THE AO IN THE DRAFT ORDER OF ASSESSMENT PASSED BY THE AO. THE AS SESSEE PREFERRED OBJECTIONS TO THE DETERMINATION OF ALP BY THE TPO B EFORE THE DISPUTE IT(TP)A NO.3134/BANG/2018 PAGE 4 OF 21 RESOLUTION PANEL (DRP). THE DRP EXCLUDED 2 OUT OF 8 COMPARABLE COMPANIES CHOSEN BY THE TPO VIZ., (I) CIGNITY TECHN OLOGIES LTD. AND (II) SQS INDIA BFSI LTD. FROM THE LIST OF COMPARABLES. AFTER THE DIRECTIONS OF THE DRP, THE AO GAVE EFFECT TO THE DIRECTIONS OF TH E DRP IN HIS FINAL ORDER OF ASSESSMENT, IN WHICH THE ADDITION SUGGESTED BY T HE TPO, TO THE EXTENT IT WAS SUSTAINED BY THE DRP WAS MADE TO THE TOTAL INCO ME OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ADDITION ON ACCOUNT OF D ETERMINATION OF ALP, AND THE CONSEQUENT ADDITION TO THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OUT OF 7 COMPARABLE COMPANIES THAT REMAIN AFTE R THE ORDER OF DRP, THE ASSESSEE SEEKS EXCLUSION OF 4 COMPARABLES VIZ., (I) INFOSYS LTD., (II) LARSEN & TOUBRO (L&T) INFOTECH LTD., (III) PERSISTENT SYST EMS LTD. AND (IV) THIRDWARE SOLUTIONS LTD. 8. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT A DECISION OF ITAT BANGALORE BENCH RENDERED IN THE CA SE OF LG SOFT (P) PVT. LTD. IN IT(TP)A NO.3122/BANG/2018 FOR THE AY 2014-15 DATED 28.5.2019, WHICH IS A DECISION RENDERED IN THE CASE OF SWD SER VICES PROVIDER SUCH AS THE ASSESSEE, IN WHOSE CASE ALSO THE TPO HAD CHOSEN SIMILAR/SAME SET OF COMPARABLE COMPANIES AS WAS CHOSEN IN THE CASE OF T HE ASSESSEE AND THE ORDERS WERE ALSO IN RELATION TO THE SAME ASSESSMENT YEAR AS THAT OF THE ASSESSEE IN THE PRESENT APPEAL. IN THE AFORESAID DECISION, 2 OUT OF THE AFORESAID 4 COMPARABLE COMPANIES VIZ., (I) INFOSYS LTD. & (II) PERSISTENT SYSTEMS LTD., AND (III) THIRDWARE SOLUTIONS LTD., W ERE REGARDED AS NOT COMPARABLE WITH A SWD SERVICES PROVIDER SUCH AS ASS ESSEE. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRI BUNAL:- 6. WE NOTICE THAT THE CO-ORDINATE BENCH HAS EXCLU DED M/S INFOSYS LTD IN AY 2008-09 BY FOLLOWING THE DECISION RENDERED BY ANOTHER CO-ORDINATE BENCH IN THE CASE OF 3DPLM S OFTWARE IT(TP)A NO.3134/BANG/2018 PAGE 5 OF 21 SOLUTIONS LTD (IT(TP)A NO.1303/BANG/2012 DATED 28.1 1.2013, WHEREIN THE DECISION RENDERED IN THE CASE OF TRIOLO GY E BUSINESS SOFTWARE INDIA P LTD (ITA NO.1054/BANG/2011) WAS FO LLOWED AND IT WAS HELD THAT M/S INFOSYS TECHNOLOGIES LTD I S NOT FUNCTIONALLY COMPARABLE SINCE IT OWNS SIGNIFICANT I NTANGIBLE AND HAS HUGE REVENUES FROM SOFTWARE PRODUCTS. IT WAS F URTHER OBSERVED THAT THE BREAK-UP OF REVENUE FROM SOFTWARE SERVICES AND SOFTWARE PRODUCT IS NOT AVAILABLE. 6.1 IT WAS STATED THAT THERE IS NO CHANGE IN FACTS. ACCORDINGLY, FOLLOWING THE DECISION RENDERED IN THE ASSESSEE'S O WN CASE IN AY 2008-09, WE DIRECT EXCLUSION OF M/S INFOSYS LTD. 7. IN AY 2008-09, THE CO-ORDINATE BENCH HAS EXCLUDE D M/S PERSISTENT SYSTEMS LTD ALSO BY FOLLOWING THE DECISION RENDERED IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD (SUPRA) , WHERE IN IT WAS HELD THAT M/S PERSISTENT SYSTEMS LTD IS ENGAGED IN PRODUCT DEVELOPMENT AND PRODUCT DESIGN SERVICES WHILE THE A SSESSEE IS A SOFTWARE DEVELOPMENT SERVICE PROVIDER. FURTHER, THE SEGMENTAL DETAILS WERE NOT AVAILABLE. 7.1 IT WAS STATED THAT THERE IS NO CHANGE IN FACTS. ACCORDINGLY, FOLLOWING THE DECISION RENDERED IN THE ASSESSEE'S O WN CASE IN AY 2008-09, WE DIRECT EXCLUSION OF M/S PERSISTENT SYST EMS LTD. 8. WE ALSO NOTICE THAT IN AY 2008-09, THE CO-ORDIN ATE BENCH HAS EXCLUDED M/S.THIRDWARE SOLUTIONS LTD., ALSO BY FOLL OWING THE DECISION RENDERED IN THE CASE OF 3DPLM SOFTWARE SOL UTIONS LTD. (SUPRA), WHERE IN IT WAS HELD THAT M/S.THIRDWARE SO LUTIONS LTD., IS ENGAGED IN PRODUCT DEVELOPMENT AND EARNS REVENUE FROM SALE OF LICENSES AND SUBSCRIPTION. FURTHER, THE SEGMENT AL DETAILS WERE NOT AVAILABLE. 8.1. IT WAS STATED THAT THERE IS NO CHANGE IN FACT S. ACCORDINGLY, FOLLOWING THE DECISION RENDERED IN THE ASSESSEES O WN CASE IN AY 20-08-09, WE DIRECT EXCLUSION OF M/S.THIRDWARE S OLUTIONS LTD. 9. AS FAR AS L&T INFOTECH LTD. IS CONCERNED, THE COMPARABILITY OF THIS COMPANY WAS OMITTED TO BE CONSIDERED IN THE AFORESA ID ORDER AND IN THE SUBSEQUENT ORDER IN MP NO.95/BANG/2019 DATED 27.9.2 019, COMPARABILITY IT(TP)A NO.3134/BANG/2018 PAGE 6 OF 21 OF THIS COMPANY WAS CONSIDERED AND THE TRIBUNAL EXC LUDED IT FROM THE LIST OF COMPARABLE COMPANIES OBSERVING AS FOLLOWS:- 10A. THE ASSESSEE HAS SOUGHT EXCLUSION OF M/S L & T INFOTECH LTD ON THE GROUND THAT THERE WERE EXTRAORDINARY EVENTS DURING THE YEAR, IT POSSESSES BRAND AND INTANGIBLES, IT HAS NO T PROVIDED SEGMENTAL INFORMATION AND IT HAS GOT SUBCONTRACTING EXPENSES. THE LD A.R SUBMITTED THAT THE ABOVE SAID COMPANY HA S BEEN EXCLUDED BY THE CO-ORDINATE BENCH IN THE CASE OF ME TRIC STREAM INFOTECH P LTD (IT(TP)A NO.1418 & 2735/BANG/2017) R ELATING TO AY 2013-14 AND ALSO IN THE CASE OF ELECTRONICS FOR IMAGING INDIA P LTD (IT(TP)A NO.1506/BANG/2016 RELATING TO AY 201 1-12). THE LD A.R SUBMITTED THAT THERE IS NO CHANGE IN FAC TS IN THIS YEAR ALSO AND ACCORDINGLY PRAYED FOR EXCLUSION OF THE AB OVE SAID COMPANY. 10A.1 WE HEARD LD D.R AND PERUSED THE RECORD. WE NOTICE THAT M/S L & T INFOTECH LTD HAS BEEN EXCLUDED BY THE COO RDINATE BENCH IN THE CASE OF METRIC STREAM INFOTECH P LTD ( SUPRA) FOR AY 2013-14 AND ALSO IN THE CASE OF ELECTRONICS FOR IMA GING INDIA P LTD (SUPRA) FOR AY 2011-12. THE LD A.R SUBMITS THAT THERE IS NO CHANGE IN FACTS PREVAILING IN THE CURRENT YEAR VIS- A-VIS THE YEARS CONSIDERED BY THE CO-ORDINATE BENCHES IN THE ABOVE SAID CASES. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISIONS, WE DIRECT EXCLUSION OF M/S L & T INFOTECH LTD. 10. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNC EMENTS ON THE AFORESAID ISSUE WHICH REMAIN UNCONTROVERTED, WE ARE OF THE VI EW THAT THE AFORESAID FOUR COMPANIES SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. WE HOLD AND DIRECT ACCORDINGLY. 11. THE LD. COUNSEL FOR THE ASSESSEE SOUGHT INCLUSI ON OF COMPARABLE COMPANIES VIZ., (I) CG-VAK SOFTWARE & EXPORTS LTD., (II) I2T2 INDIA LTD. AND (III) EVOKE TECHNOLOGIES P. LTD. 12. AS FAR AS CG VAK SOFTWARE & EXPORTS LTD. IS CON CERNED, THE TPO EXCLUDED THE AFORESAID COMPANY FOR THE REASON THAT THIS COMPANY WAS ENGAGED IN BOTH SWD SERVICES AND ITES AND NO SEGMEN TAL DETAILS WERE IT(TP)A NO.3134/BANG/2018 PAGE 7 OF 21 AVAILABLE. BEFORE THE DRP, THE ASSESSEE DID NOT CH ALLENGE THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES BY THE TPO. HOWEVER, BEFORE THE TRIBUNAL, THE ASSESSEE HAS SOUG HT INCLUSION OF THIS COMPANY IN THE FINAL LIST OF COMPARABLES ON THE GRO UND THAT SEGMENTAL DETAILS BETWEEN SWD SERVICES AND ITES IS AVAILABLE IN THE PUBLIC DOMAIN AND 98.12% OF INCOME OF THIS COMPANY IS FROM RENDER ING SWD SERVICES. IN THIS REGARD, OUR ATTENTION WAS DRAWN TO PB PAGE 164 6 OF THE ANNUAL REPORT COMPENDIUM, WHICH SHOWS THAT TOTAL REVENUE FROM OPE RATION IS RS.8.95 CRORES OUT OF WHICH 8.78 CRORES IS REVENUE FROM SOF TWARE SERVICES. IT IS THE PLEA OF ASSESSEE THAT FOR AY 2013-14, THIS COMPANY WAS REGARDED AS A COMPARABLE COMPANY BY THE TPO HIMSELF. 13. WE HAVE GIVEN CAREFUL CONSIDERATION TO THE SUB MISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE AND ARE OF THE VIEW TH AT THE ISSUE OF COMPARABILITY OF THIS COMPANY NEEDS TO BE LOOKED IN TO AFRESH BY THE TPO, IN THE LIGHT OF FACTS BROUGHT TO OUR NOTICE BY THE LD. COUNSEL FOR THE ASSESSEE. THE FACT THAT THE ASSESSEE DID NOT OBJEC T TO THE EXCLUSION OF THIS COMPANY BY THE TPO BEFORE THE DRP CANNOT BE THE BAS IS, NOT TO CONSIDER THE CLAIM OF ASSESSEE BEFORE THE TRIBUNAL. WE DERI VE SUPPORT FOR THE ABOVE CONCLUSION FROM THE DECISION OF SPECIAL BENCH CHAND IGARH IN DCIT VS. QUARK SYSTEMS PVT. LTD. 38 SOT 307 (SB)(CHANDIGARH ) WHEREIN IT WAS HELD THAT THE REVENUE AUTHORITIES, INCLUDING TPO W ERE REQUIRED TO APPLY STATUTORY PROVISIONS AND CONSIDER FOR PURPOSES OF C OMPARISON FUNCTIONS, ASSETS AND RISKS (TURNOVER), PROFIT AND TECHNOLOGY EMPLOYED BY THE TESTED PARTY AND OTHER ENTERPRISES TAKEN AS COMPARABLE. ST ATUTORY DUTY IS CAST ON THEM TO UNDERTAKE ABOVE EXERCISE. IF THIS HAS NOT B EEN, THE TRIBUNAL AS A FACT-FINDING BODY HAS TO TAKE INTO ACCOUNT ALL THE RELEVANT MATERIAL AND DETERMINE THE QUESTION AS PER THE STATUTORY REGULAT IONS. WE THEREFORE REMAND THE QUESTION OF INCLUSION OF THIS COMPANY AS A COMPARABLE COMPANY TO THE TPO FOR FRESH CONSIDERATION IN THE F ACTS BROUGHT TO OUR IT(TP)A NO.3134/BANG/2018 PAGE 8 OF 21 NOTICE REFERRED TO ABOVE AND AFTER AFFORDING DUE OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. 14. AS FAR AS INCLUSION OF THE COMPANY I2T2 INDIA L TD. IS CONCERNED, THIS COMPANY WAS REJECTED BY THE ASSESSEE ITSELF IN THE TP STUDY AND FOR THE FIRST TIME, THE ASSESSEE SEEKS TO INCLUDE THIS COMP ANY AS A COMPARABLE COMPANY BY POINTING OUT THAT THIS COMPANY IS FUNCTI ONALLY COMPARABLE WITH SWD SERVICES PROVIDER SUCH AS THE ASSESSEE AND THAT ON BASIS OF FILTERS APPLIED BY THE TPO. OUR ATTENTION WAS DRAWN BY THE LD. COUNSEL FOR THE ASSESSEE TO THE DECISION OF THE ITAT IN THE CASE OF LG SOFT (INDIA) PVT. LTD. (SUPRA) WHEREIN THIS TRIBUNAL IN PARA 12 FOUND THAT THIS C OMPANY WAS COMPARABLE WITH A SWD SERVICE PROVIDER SUCH AS THE ASSESSEE. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND PROPER TO DIRECT THE TPO/AO TO CONSIDER COMPARABILITY OF THIS COMPANY AFRESH, AFTER OPPORTU NITY TO THE ASSESSEE IN THE LIGHT OF FACTS BROUGHT TO OUR NOTICE AFTER DUE OPPORTUNITY TO THE ASSESSEE. 15. THE ASSESSEE SEEKS INCLUSION OF EVOKE TECHNOLOG IES PVT. LTD. WHICH WAS REJECTED BY THE TPO AS A COMPARABLE COMPA NY FOR THE REASON THAT DATA RELATING TO THIS COMPANY WAS NOT AVAILABL E IN THE PUBLIC DOMAIN AND THAT IT HAD A DIFFERENT FINANCIAL YEAR E NDING. BEFORE THE DRP ALSO, THE ASSESSEE DID NOT CHALLENGE THE ACTION OF THE TPO IN EXCLUDING THE AFORESAID COMPANY BECAUSE THE ASSESSEE DID NOT HAVE A DATA RELATING TO THIS COMPANY. THE ASSESSEE IS NOW SEEKING INCLUSIO N OF THIS COMPANY ON THE BASIS OF DECISION RENDERED BY THE HYDERABAD BEN CH OF ITAT IN THE CASE OF INFOR (INDIA) PVT. LTD. ITA NO.2307/HYD/2018 FOR AY 2014-15. IN THE AFORESAID DECISION, THE HYDERABAD BENCH TOOK THE FO LLOWING VIEW :- 3. AS REGARDS EVOKE TECHNOLOGIES IS CONCERNED, THE CON TENTIONS OF THE ASSESSEE ARE THAT THIS COMPANY IS FUNCTIONAL LY SIMILAR TO THE ASSESSEE, WHEREAS THE TPO & DRP HAVE HELD THAT THE FINANCIALS OF THIS COMPANY INCLUDE THE REVENUE OF ONE BRANCH O UTSIDE INDIA IT(TP)A NO.3134/BANG/2018 PAGE 9 OF 21 WHICH ARE UNAUDITED AND HENCE ARE NOT RELIABLE. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER, DREW OUR ATTENTIO N TO PAGE 963 OF THE PAPER BOOK, WHICH IS PART OF THE ANNUAL REPO RT OF EVOKE TECHNOLOGIES LTD WHEREIN THE REVENUE OF INDIAN BRAN CH OF ASSESSEE IS SEPARATELY SHOWN. TAKING THE SAME INTO CONSIDERATION, WE DIRECT THE AO/TPO TO RECONSIDER THE COMPARABILIT Y OF THIS COMPANY BY TAKING THE REVENUE FROM INDIAN BRANCH ON LY. THUS, THE GROUND FOR MAVERIC SYSTEMS LTD IS REJECTED AND FOR EVOKE TECHNOLOGIES LTD IS ALLOWED FOR STATISTICAL PURPOSE S. 16. WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE TO DIRECT THE TPO/AO TO CONSIDER THIS ISSUE AFRESH, AFTER OPPORTUNITY TO THE ASSESSEE AND IN THE LIGHT OF FACTS BROUGHT TO OUR NOTICE AS ABOVE. 17. THE OTHER ISSUE THAT REMAINS FOR CONSIDERATION IN THE SWD SERVICES SEGMENT IS THE ISSUE WITH REGARD TO NON-GRANT OF WO RKING CAPITAL ADJUSTMENT WHILE ARRIVING AT THE AVERAGE ARITHMETIC PROFIT MAR GIN OF COMPARABLE COMPANIES. AS FAR AS THE AFORESAID ISSUE IS CONCER NED, THE DRP REFUSED TO ALLOW THE WORKING CAPITAL ADJUSTMENT FOR THE FOLLOW ING REASONS:- 2.5.1 HAVING CONSIDERED THE SUBMISSIONS, WE NO TE THAT RULE 10B PROVIDES FOR MAKING REASONABLY ACCURATE ADJUSTM ENT TO THE UNCONTROLLED COMPARABLE TRANSACTION TO ELIMINATE TH E MATERIAL EFFECTS OF DIFFERENCES ON THE PRICE, COST OR PROFIT S. THE ASSESSEE HAS ARGUED FOR WORKING CAPITAL ADJUSTMENT CONTENDIN G THAT THERE EXIST DIFFERENCES IN THE PAYABLE AND RECEIVABLE POS ITION BETWEEN THE ASSESSEE AND THE COMPARABLES. HOWEVER, IT WAS N OT DEMONSTRATED WITH ANY DATA OR INFORMATION AS TO THE IMPACT OF SUCH DIFFERENCE ON THE PRICE, COST OR PROFITS, AND AS TO WHETHER SUCH DIFFERENCE MATERIALLY AFFECT THE PRICE, COST O R PROFITS. THE ACCOUNTS PAYABLES' AND 'RECEIVABLES' SHOWN IN THE BALANCE SHEET ONLY REFLECTS THE POSITION AS AT THE END OF THE FIN ANCIAL YEAR, AND AS SUCH IT WOULD NOT ENABLE TO MEASURE THE IMPACT O F WORKING CAPITAL ON THE COSTS, PRICE OR PROFITS. THE WORKING CAPITAL REQUIREMENTS AND IMPACT DEPENDS ON VARIOUS FACTORS SUCH AS BUSINESS CYCLE, THE NATURE OF BUSINESS ACTIVITY WIT H ITS CORRELATION ON THE GENERAL ECONOMIC TRENDS, THE FUND AND CAPITA L POSITION OF THE COMPANY, ITS MARKETING STRATEGIES, ITS MARKET S HARE ETC. ALL OF WHICH CANNOT BE CAPTURED IN THE YEAR END RECEIVABLE OR PAYABLE IT(TP)A NO.3134/BANG/2018 PAGE 10 OF 21 POSITION. BESIDES, THE 'PAYABLE' AND 'RECEIVABLE' P OSITION STATED IN THE BALANCE SHEET MAY NOT EXACTLY REFLECT AS TO WHE THER IT ARISES FROM TRANSACTION ELATING TO REVENUE ACCOUNT OR CAPI TAL ACCOUNT AS THERE IS NO UNIFORMITY IN THE ACCOUNTING OR REPO RTING REQUIREMENTS, AND AN INTERMIXING IS GENERALLY POSSI BLE. THE COST ASCRIBABLE TO THE WORKING CAPITAL WOULD BE DIFFEREN T TO DIFFERENT ENTERPRISES DEPENDING ON THE COST OF FUND TO THE EN TERPRISE, THE COST OF MONEY IN THE ECONOMY IT OPERATES ETC. IN VI EW OF THESE, A REASONABLE ACCURATE ADJUSTMENT IS NOT POSSIBLE, AS THE DIFFERENCES IN WORKING CAPITAL REQUIREMENTS ITSELF IS BASED ON VARIOUS ASSUMPTIONS. BESIDES, WE ALSO NOTE THAT THE ASSESSE E HAD FAILED TO DEMONSTRATE SUCH MATERIAL DIFFERENCES SO AS TO WARR ANT AN ADJUSTMENT. IN THESE CIRCUMSTANCES, WE ARE INCLINED TO UPHOLD THE TPO'S REASONING AND REJECT THE ASSESSEE'S CLAIM FOR WORKING CAPITAL ADJUSTMENT. 18. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T A CO-ORDINATE BENCH OF ITAT BANGALORE IN THE CASE OF HUAWEI TECHNOLOGIES INDIA PVT. LTD. IT(TP)A NO.1939/BANG/2017 HAS DEALT WITH THE ISSUE OF GRANTING OF WORKING CAPITAL ADJUSTMENT. THE TRIBUNAL HELD THAT A READING OF RULE 10B(1)(E)(III) OF THE RULES READ WITH SEC.92CA OF T HE ACT, WOULD CLEARLY SHOW THAT THE NET PROFIT MARGIN ARISING IN COMPARABLE UNCONTR OLLED TRANSACTIONS HAS TO BE ADJUSTED TO TAKE INTO ACCOUN T THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMP ARABLE UNCONTROLLED TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMO UNT OF NET PROFIT MARGIN IN THE OPEN MARKET. THE TRIBUNAL ALSO REFERRED TO CHAPTERS I AND III OF THE OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS (HEREAFTER THE TPG) WHICH CONTAIN S EXTENSIVE GUIDANCE ON COMPARABILITY ANALYSES FOR TRANSFER PRICING PURP OSES. GUIDANCE ON COMPARABILITY ADJUSTMENTS IS FOUND IN PARAGRAPHS 3. 47-3.54 AND IN THE ANNEX TO CHAPTER III OF THE TPG. A REVISED VERSION OF THIS GUIDANCE WAS APPROVED BY THE COUNCIL OF THE OECD ON 22 JULY 2010 . IN PARAGRAPH 2 OF THOSE GUIDELINES IT HAS BEEN EXPLAINED AS TO WHAT I S COMPARABILITY ADJUSTMENT. THE GUIDELINE EXPLAINS THAT WHEN APPLY ING THE ARMS LENGTH IT(TP)A NO.3134/BANG/2018 PAGE 11 OF 21 PRINCIPLE, THE CONDITIONS OF A CONTROLLED TRANSACTI ON (I.E. A TRANSACTION BETWEEN A TAXPAYER AND AN ASSOCIATED ENTERPRISE) AR E GENERALLY COMPARED TO THE CONDITIONS OF COMPARABLE UNCONTROLLED TRANSA CTIONS. IN THIS CONTEXT, TO BE COMPARABLE MEANS THAT: NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE SIT UATIONS BEING COMPARED COULD MATERIALLY AFFECT THE CONDITION BEIN G EXAMINED IN THE METHODOLOGY (E.G. PRICE OR MARGIN), OR REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO E LIMINATE THE EFFECT OF ANY SUCH DIFFERENCES. THESE ARE CALLE D COMPARABILITY ADJUSTMENTS. 19. THE TRIBUNAL ANALYSED PARAGRAPH 13 TO 16 OF TH E AFORESAID OECD GUIDELINES, WHICH HIGHLIGHTS THE NEED FOR WORKING C APITAL ADJUSTMENT AS FOLLOWS:- 13. IN A COMPETITIVE ENVIRONMENT, MONEY HAS A TI ME VALUE. IF A COMPANY PROVIDED, SAY, 60 DAYS TRADE TERMS FOR PA YMENT OF ACCOUNTS, THE PRICE OF THE GOODS SHOULD EQUATE TO T HE PRICE FOR IMMEDIATE PAYMENT PLUS 60 DAYS OF INTEREST ON THE I MMEDIATE PAYMENT PRICE. BY CARRYING HIGH ACCOUNTS RECEIVABLE A COMPANY IS ALLOWING ITS CUSTOMERS A RELATIVELY LONG PERIOD TO PAY THEIR ACCOUNTS. IT WOULD NEED TO BORROW MONEY TO FUND THE CREDIT TERMS AND/OR SUFFER A REDUCTION IN THE AMOUNT OF CA SH SURPLUS WHICH IT WOULD OTHERWISE HAVE AVAILABLE TO INVEST. IN A COMPETITIVE ENVIRONMENT, THE PRICE SHOULD THEREFORE INCLUDE AN ELEMENT TO REFLECT THESE PAYMENT TERMS AND COMPENSA TE FOR THE TIMING EFFECT. 14. THE OPPOSITE APPLIES TO HIGHER LEVELS OF ACCO UNTS PAYABLE. BY CARRYING HIGH ACCOUNTS PAYABLE, A COMPANY IS BEN EFITTING FROM A RELATIVELY LONG PERIOD TO PAY ITS SUPPLIERS. IT WOULD NEED TO BORROW LESS MONEY TO FUND ITS PURCHASES AND/OR B ENEFIT FROM AN INCREASE IN THE AMOUNT OF CASH SURPLUS AVAILABLE TO INVEST. IN A COMPETITIVE ENVIRONMENT, THE COST OF GOODS SOLD SHO ULD INCLUDE AN ELEMENT TO REFLECT THESE PAYMENT TERMS AND COMPE NSATE FOR THE TIMING EFFECT. IT(TP)A NO.3134/BANG/2018 PAGE 12 OF 21 15. A COMPANY WITH HIGH LEVELS OF INVENTORY WOULD SIMILARLY NEED TO EITHER BORROW TO FUND THE PURCHASE, OR REDU CE THE AMOUNT OF CASH SURPLUS WHICH IT IS ABLE TO INVEST. NOTE TH AT THE INTEREST RATE JULY 2010 PAGE 6 MIGHT BE AFFECTED BY THE FUND ING STRUCTURE (E.G. WHERE THE PURCHASE OF INVENTORY IS PARTLY FUN DED BY EQUITY) OR BY THE RISK ASSOCIATED WITH HOLDING SPECIFIC TYP ES OF INVENTORY) 16. MAKING A WORKING CAPITAL ADJUSTMENT IS AN ATT EMPT TO ADJUST FOR THE DIFFERENCES IN TIME VALUE OF MONEY B ETWEEN THE TESTED PARTY AND POTENTIAL COMPARABLES, WITH AN ASS UMPTION THAT THE DIFFERENCE SHOULD BE REFLECTED IN PROFITS. THE UNDERLYING REASONING IS THAT: A COMPANY WILL NEED FUNDING TO COVER THE TIME GA P BETWEEN THE TIME IT INVESTS MONEY (I.E. PAYS MONEY TO SUPPL IER) AND THE TIME IT COLLECTS THE INVESTMENT (I.E. COLLECTS MONEY FROM CUSTOMERS) THIS TIME GAP IS CALCULATED AS: THE PERIOD NEEDED TO SELL INVENTORIES TO CUSTOMERS + (PLUS) THE PERIOD NEEDED TO COLLECT MONEY FROM CUSTOMERS (LESS) THE PERIOD GRANTED TO PAY DEBTS TO SUPPLIERS. 20. IN THE AFORESAID DECISION, THE REASONS FOR NOT ALLOWING ADJUSTMENT TO THE PROFIT MARGINS ON ACCOUNT OF WORKING CAPITAL DI FFERENCES BETWEEN THE TESTED PARTY AND THE COMPARABLE COMPANIES FOR THE V ERY SAME REASONS FOR WHICH CIT(A) REFUSED TO ALLOW WORKING CAPITAL ADJUS TMENT IN THE CASE OF THE ASSESSEE IN THIS APPEAL AND THOSE REASONS WERE AS F OLLOWS: (I) THE DAILY WORKING CAPITAL LEVELS OF THE TESTED PA RTY AND THE COMPARABLES WAS THE ONLY RELIABLE BASIS OF DETERMIN ING ADJUSTMENT TO BE MADE ON ACCOUNT OF WORKING CAPITAL BECAUSE THAT WOULD BE ON THE BASIS OF WORKING CAPITAL DEPLO YED THROUGHOUT THE YEAR. (II) SEGMENTAL WORKING CAPITAL IS NOT DISCLOSED IN THE ANNUAL REPORTS OF COMPANIES ENGAGED IN DIFFERENT SEGMENTS AND THEREFORE PROPER COMPARISON CANNOT BE MADE. IT(TP)A NO.3134/BANG/2018 PAGE 13 OF 21 (III) DISCLOSE IN THE BALANCE SHEET DOES NOT CONTAIN BREA K UP OF TRADE AND NON-TRADE DEBTORS AND CREDITORS AND THERE FORE WORKING CAPITAL ADJUSTMENT DONE WITHOUT SUCH BREAK UP WOULD RESULT IN COMPUTATION BEING SKEWED. (IV) COST OF CAPITAL WOULD BE DIFFERENT FOR DIFFERENT CO MPANIES AND THEREFORE WORKING CAPITAL ADJUSTMENT MADE DISRE GARDING THIS DIFFERENT BASED ON BROAD APPROXIMATIONS, ESTIM ATIONS AND ASSUMPTIONS MAY NOT LEAD TO RELIABLE RESULTS. 21. THE CIT(A) IN THE DECISION CITED BY THE LEARNE D COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON A DECISION OF CHEN NAI ITAT IN THE CASE OF MOBIS INDIA ITA NO.2112/MDS/2011 (2013) 38 TAXMANN. COM . THE TRIBUNAL HELD THAT THE SAID DECISION WAS BASED ON THE FACTUA L ASPECT THAT THE ASSESSEE WAS NOT ABLE TO DEMONSTRATE HOW WORKING CA PITAL ADJUSTMENT WAS ARRIVED AT BY THE ASSESSEE. 22. THE TRIBUNAL FURTHER HELD THAT IN THE MATTER OF DETERMINATION OF ARMS LENGTH PRICE, IT CANNOT BE SAID THAT THE BURDEN IS ON THE ASSESSEE OR THE DEPARTMENT TO SHOW WHAT IS THE ARMS LENGTH PRICE. THE DATA AVAILABLE WITH THE ASSESSEE AND THE DEPARTMENT WOULD BE THE S TARTING POINT AND DEPENDING ON THE FACTS AND CIRCUMSTANCES OF A CASE FURTHER DETAILS CAN BE CALLED FOR. AS FAR AS THE ASSESSEE IS CONCERNED, T HE FACTS AND FIGURES WITH REGARD TO HIS BUSINESS HAS TO BE FURNISHED. REGARD ING COMPARABLE COMPANIES, ONE HAS TO FALL BACK UPON ONLY ON THE IN FORMATION AVAILABLE IN THE PUBLIC DOMAIN. IF THAT INFORMATION IS INSUFFIC IENT, IT IS BEYOND THE POWER OF THE ASSESSEE TO PRODUCE THE CORRECT INFORMATION ABOUT THE COMPARABLE COMPANIES. THE REVENUE HAS, ON THE OTHER HAND POWE RS, TO COMPEL PRODUCTION OF THE REQUIRED DETAILS FROM THE COMPARA BLE COMPANIES. IF THAT POWER IS NOT EXERCISED TO FIND OUT THE TRUTH THEN I T IS NO DEFENCE TO SAY THAT THE ASSESSEE HAS NOT FURNISHED THE REQUIRED DETAILS AND ON THAT SCORE DENY ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL DIFFERENCE S. REGARDING APPLYING IT(TP)A NO.3134/BANG/2018 PAGE 14 OF 21 THE DAILY BALANCES OF INVENTORY, RECEIVABLES AND PA YABLES FOR COMPUTING WORKING CAPITAL ADJUSTMENT, THE TRIBUNAL IN THE DEC ISION CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US, RELIED ON THE D ECISION OF THE DELHI BENCH OF ITAT IN THE CASE OF ITO VS. E VALUE SERVE.COM (2016) 75 TAXMANN.COM 195 (DEL-TRIB) WHEREIN IT WAS HELD THAT INSISTING ON DAILY BALANCES OF WORKING CAPITAL REQUIREMENTS TO COMPUTE WORKING CAPITAL ADJUSTMENT IS NOT PROPER AS IT WILL BE IMPOSSIBLE T O CARRY OUT SUCH EXERCISE AND THAT WORKING CAPITAL ADJUSTMENT HAS TO BE BASED ON THE OPENING AND CLOSING WORKING CAPITAL DEPLOYED. THE BENCH HAS AL SO OBSERVED THAT IN TRANSFER PRICING ANALYSIS THERE IS ALWAYS AN ELEMEN T OF ESTIMATION BECAUSE IT IS NOT AN EXACT SCIENCE. ONE HAS TO SEE THAT RE ASONABLE ADJUSTMENT IS BEING MADE SO AS TO BRING BOTH COMPARABLE AND TEST PARTY ON SAME FOOTING. THE TRIBUNAL HELD THAT THERE IS LITTLE MERIT IN CIT (A)S OBJECTION ON WORKING ADJUSTMENT BASED ON UNAVAILABLE DAILY WORKING CAPIT AL REQUIREMENTS DATA. THE TRIBUNAL ALSO HELD THAT THERE IS ALSO NO MERIT IN THE OBJECTION OF THE CIT(A) REGARDING ABSENCE OF SEGMENTAL DETAILS AVAIL ABLE OF WORKING CAPITAL REQUIREMENTS OF COMPARABLE COMPANIES CHOSEN AND ABS ENCE OF DETAILS OF TRADE AND NON-TRADE DEBTORS OF COMPARABLE COMPANIES AS THESE DETAILS ARE BEYOND THE POWER OF THE ASSESSEE TO OBTAIN, UNLESS THESE DETAILS ARE AVAILABLE IN PUBLIC DOMAIN. REGARDING ABSENCE OF COST OF WORKING CAPITAL FUNDS, THE OECD GUIDELINES CLEARLY ADVOCATES ADOPTI NG RATE(S) OF INTEREST APPLICABLE TO A COMMERCIAL ENTERPRISE OPERATING IN THE SAME MARKET AS THE TESTED PARTY. 23. THE TRIBUNAL FINALLY CONCLUDED THAT THE CIT(A) WAS NOT JUSTIFIED IN DENYING ADJUSTMENT ON ACCOUNT OF WORKING CAPITAL AD JUSTMENT. 24. IN THE CASE OF THE ASSESSEE IN THIS APPEAL, NEI THER THE TPO NOR THE DRP HAVE GONE INTO THE QUANTUM OF ADJUSTMENT THAT I S TO BE GIVEN TOWARDS WORKING OF WORKING CAPITAL ADJUSTMENT, WE ARE OF TH E VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO REMAND THE ISSUE OF GRANTIN G OF WORKING CAPITAL IT(TP)A NO.3134/BANG/2018 PAGE 15 OF 21 ADJUSTMENT TO THE TPO/AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW AFTER DUE OPPORTUNITY OF BEING AFFORDED TO THE ASSE SSEE. WE HOLD AND DIRECT ACCORDINGLY. 25. NO OTHER GROUNDS WERE PRESSED FOR ADJUDICATION IN THE SWD SERVICES SEGMENT. WE DIRECT THE TPO/AO TO COMPUTE ALP AS PER THE DIRECTIONS GIVEN ABOVE AND AFTER AFFORDING OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. ITES SEGMENT 26. AS FAR AS ITES SEGMENT IS CONCERNED, THE MOST A PPROPRIATE METHOD WAS TNMM AND PLI CHOSEN FOR COMPARISON WAS OP/OC. THE ASSESSEES OP/OC WAS 12.57%. THE ASSESSEE HAD CHOSEN 11 COMPA RABLE COMPANIES, THEIR AVERAGE ARITHMETIC MEAN PROFIT MA RGIN WAS 13.67% AND ASSESSEE CONSIDERED THE TRANSACTION AS AT ARMS LEN GTH TAKING INTO ACCOUNT THE PERMISSIBLE DEVIATION TO THE PROFIT MARGIN PERM ITTED UNDER 2 ND PROVISO TO SECTION 92C(2) OF THE ACT. THE TPO DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND HE CHOSE 5 COMPARABLE COMPANIES AS PER THE FOLLOWING CHART:- AVERAGE ITES SEGMENT AMOUNTS IN RS.LAKH SL NO. COMPANY NAME OR/SALES OC OP OP/OC (IN %) 1 INFOSYS B P O LTD. 2,30,900.00 1,81,200.00 49,700.0 0 27.43% 2 MICROGENETIC SYSTEMS LTD. 225.97 191.41 34.5 6 18.06% 3 MICROLAND LTD. 34,47 1 .00 28,709.00 5,762.00 20.07% 4 B N R UDYOG LTD. (SEG) 142.59 114.00 28.59 25.08% 5 CROSSDOMAIN SOLUTIONS PVT LTD.. 7,462.75 6,164.00 1,298.76 21.07% IT(TP)A NO.3134/BANG/2018 PAGE 16 OF 21 27. THE TPO ULTIMATELY COMPUTED THE ALP AS FOLLOWS: - ITES SEGMENT ARM'S LENGTH MEAN MARGIN ON COST 22.34% OPERATING COST 60,92,83,998 ARM'S LENGTH PRICE(ALP) @ 122.34% OF OPERATING COST) 74,53,98,043 PRICE RECEIVED 68,58,87,534 VARIATION IN PRICE 5,95,10,509 3% OF PRICE RECEIVED 2,05,76,626 SHORTFALL BEING ADJUSTMENT 5,95,10,509 28. THE TRANSFER PRICING ADJUSTMENT AND CONSEQUEN T ADDITION TO THE TOTAL INCOME AS DETERMINED BY THE TPO WAS INCORPORA TED BY THE AO IN THE DRAFT ORDER OF ASSESSMENT PASSED BY THE AO. THE AS SESSEE PREFERRED OBJECTIONS TO THE DETERMINATION OF ALP BY THE TPO B EFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP EXCLUDED ONLY ONE COMPANY FROM THE LIST OF COMPARABLE COMPANIES VIZ., BMR UDYOG LTD. A FTER THE DIRECTIONS OF THE DRP, THE AO GAVE EFFECT TO THE DIRECTIONS OF TH E DRP IN HIS FINAL ORDER OF ASSESSMENT, IN WHICH THE ADDITION SUGGESTED BY T HE TPO, TO THE EXTENT IT WAS SUSTAINED BY THE DRP WAS MADE TO THE TOTAL INCO ME OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ADDITION ON ACCOUNT OF D ETERMINATION OF ALP, AND THE CONSEQUENT ADDITION TO THE TOTAL INCOME OF THE ASSESSEE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 29. BEFORE THE TRIBUNAL, THE ASSESSEE SEEKS EXCLUSI ON OF 3 COMPARABLE COMPANIES OUT OF REMAINING 4 COMPARABLES VIZ., (I) INFOSYS BPO LTD., (II) MICROLAND LTD. AND (III) CROSS DOMAIN SOLUTIONS P. LTD. AS FAR AS COMPARABILITY OF THE AFORESAID 3 COMPANIES IN THE I TES SEGMENT ARE CONCERNED, THE HYDERABAD BENCH OF THE TRIBUNAL IN T HE CASE OF INFOR (I) PVT. LTD. V. DCIT [2019] 109 TAXMANN.COM 435 [HYD. TRIB. ] HAS TAKEN THE FOLLOWING VIEW:- IT(TP)A NO.3134/BANG/2018 PAGE 17 OF 21 INFOSYS BPO LTD. 51. AS REGARDS THE COMPARABILITY OF INFOSYS BPO SERVICE S LTD IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS A LARGE COMPANY OPERATING AT HIGH ECONOMIES O F SCALE WITH TURNOVER OF INR 2023 CRORES COMPARED TO THE ASSESSE E HAVING TURNOVER OF RS.26.25 CRORES ONLY. FURTHER, IT IS SU BMITTED THAT IT HAS A BRAND VALUE AND IT EMPLOYS SUBSTANTIAL PORTIO N OF ITS FIXED ASSETS IN INTANGIBLE ASSETS. HE SUBMITTED THAT THE COMPARABILITY OF THE SAID COMPANY HAD COME UP FOR CONSIDERATION IN T HE ASSESSEE'S OWN CASE FOR THE EARLIER A.Y 2011-12 AND ALSO IN 20 13-14. IN A.Y 2011-12, THE TRIBUNAL HAD DIRECTED ITS EXCLUSION WH ILE IN 2013- 14, THE DRP ITSELF HAD DIRECTED ITS EXCLUSION AND T HE REVENUE HAS NOT FILED ANY APPEAL AS AGAINST THE SAME. HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF AGINITY INDIA LTD. ( SUPRA ) WHEREIN THE SAID COMPANY HAS BEEN DIRECTED TO BE EXCLUDED. MICROLAND LTD. 60. AS REGARDS MICROLAND LTD IS CONCERNED, THE CASE OF THE ASSESSEE IS THAT IT IS INTO BUSINESS OF RENDERING H YBRID IT INFRASTRUCTURE AND IT ALSO UNDERTAKES R&D ACTIVITIE S AND HAS ACHIEVED ABNORMAL GROWTH OF 149% DURING THE CURRENT A.Y. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO S UBMITTED THAT THE CORRECT MARGIN OF THIS COMPANY SHOULD BE CONSID ERED. 61. THE LEARNED DR, HOWEVER, SUBMITTED THAT THIS C OMPANY WAS TAKEN UP BY THE ASSESSEE ITSELF AS COMPARABLE BEFOR E THE TPO AND FURTHER THAT IN THE EARLIER A.Y.2013-14 THIS COMPAN Y HAS BEEN ACCEPTED AS A COMPARABLE. THEREFORE, HE SUBMITTED THAT IT SHOULD BE RETAINED AS A COMPARABLE. 62. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS COMPANY IS INTO R & D ACT IVITIES AND HAS ACHIEVED ABNORMAL GROWTH DURING THE CURRENT A.Y. I N THE CASE OF S & P CAPITAL IQ (INDIA) LTD., WE HAVE CONSIDERED T HE COMPARABILITY OF THIS COMPANY TO ITES COMPANY AND H AS DIRECTED ITS EXCLUSION. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT ITS EXCLUSION FOR THIS A.Y AS WELL. IT(TP)A NO.3134/BANG/2018 PAGE 18 OF 21 CROSS DOMAIN SOLUTIONS P. LTD. 57. AS REGARDS CROSS DOMAIN SOLUTIONS LTD IS CONC ERNED, THE CASE OF THE ASSESSEE IS THAT IT IS FUNCTIONALLY DIS SIMILAR AS IT RENDERS KPO SERVICES. THE LEARNED DR, HOWEVER, SUPP ORTED THE ORDERS OF THE TPO & DRP. 58. AS REGARDS THE SERVICES RENDERED BY THIS COMPA NY, WE FIND THAT AT PAGE 172 OF THE PAPER BOOK WHICH IS THE WEB SITE PRINTOUT, IT IS SHOWN AS A 'KNOWLEDGE CENTER'. THE LEARNED DR HAD SUBMITTED THAT IF THE CONTENTS OF A WEBSITE GIVEN B Y A COMPANY IS TAKEN INTO CONSIDERATION, THEN EVEN THE ASSESSEE WO ULD BE FALLING IN THE SAME CATEGORY I.E. KNOWLEDGE PROCESS OUTSOUR CING. THE LEARNED DR, EXCEPT FOR RELYING UPON HIS ARGUMENT TH AT THE ASSESSEE IS ALSO INTO HIGH-END BPO SERVICES, HAS NO T BEEN ABLE TO POINT OUT THAT CROSS DOMAIN SOLUTIONS LTD IS NOT A BPO. THEREFORE, WE DIRECT EXCLUSION OF THIS COMPANY ALSO FROM THE FINAL LIST OF COMPARABLES. 30. IN THE LIGHT OF THE AFORESAID PRECEDENT RENDERE D ON IDENTICAL FACTS, WE ARE OF THE VIEW THAT THE AFORESAID 3 COMPANIES SHOU LD BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 31. THE ASSESSEE ALSO SEEKS INCLUSION OF 3 COMPANIE S VIZ., ACE BPO SERVICES LTD., INFORMED TECHNOLOGIES INDIA LTD. AND JINDAL INTELLICOM P. LTD. 32. AS FAR AS ACE BPO SERVICES LTD. IS CONCERNED, THE TPO EXCLUDED THIS COMPANY FROM THE LIST OF COMPARABLE COMPANIES FOR THE REASON THAT THE EXPORT REVENUE BEARING TO THE WAS LESS THAN THRESHO LD LIMIT OF MORE THAN 75%. THE ASSESSEE CHALLENGED EXCLUSION OF THIS COM PANY BEFORE THE DRP BY POINTING OUT THAT THIS COMPANY SATISFIES EXPORT REVENUE FILTER. THE DRP IN ITS ORDER, HOWEVER, CONFIRMED EXCLUSION OF THIS COMPANY ON THE GROUND THAT THERE WAS NO RPT INFORMATION AVAILABLE IN THE ANNUAL REPORT AND THEREFORE THIS COMPANY FAILS THE RPT FILTER. WE A RE OF THE VIEW THAT WITHOUT ADEQUATE INFORMATION ON RPT, IT WOULD NOT BE PROPER TO EXCLUDE THIS COMPANY AND THE AO SHOULD HAVE USED HIS POWERS U/S. 133(6) OF THE ACT TO IT(TP)A NO.3134/BANG/2018 PAGE 19 OF 21 CALL FOR THE REQUIRED DETAILS FROM THIS COMPANY. W E THEREFORE REMAND THE QUESTION OF COMPARABILITY OF THIS COMPANY TO THE TP O/AO FOR FRESH CONSIDERATION WITH A DIRECTION TO GET THE REQUIRED INFORMATION U/S. 133(6) OF THE ACT AND THEREAFTER DECIDE THE ISSUE AFRESH IN A CCORDANCE WITH LAW, AFTER OPPORTUNITY TO THE ASSESSEE. 33. AS FAR AS INFORMED TECHNOLOGIES (I) LTD. IS CON CERNED, IT IS THE CONTENTION OF THE ASSESSEE THAT THIS COMPANY WAS FU NCTIONALLY COMPARABLE AS IT WAS RENDERING BPO SERVICES, BUT THE TPO HELD THAT IT WAS FUNCTIONALLY DIFFERENT. WHEN THE DETAILS OF FUNCTIONAL COMPARAB ILITY WERE POINTED OUT TO THE DRP, THE DRP HELD THAT THIS COMPANY FAILS SERVI CE INCOME FILTER OF MORE THAN 75% OF THE TOTAL INCOME. IT IS THE PLEA OF AS SESSEE THAT WHILE APPLYING THIS FILTER, THE OTHER INCOME PORTION WAS ALSO CONS IDERED WHICH IS INCORRECT. IT WAS SUBMITTED THAT THERE WAS ONLY ONE REPORTABLE SEGMENT FOR THIS COMPANY VIZ., BPO SERVICES AND HENCE THIS COMPANY S HOULD HAVE BEEN TAKEN AS A COMPARABLE. WE ARE OF THE VIEW THAT BAS ED ON THESE SUBMISSIONS, THE TPO/AO SHOULD BE ASKED TO LOOK INT O THE ISSUE AFRESH, AFTER DUE OPPORTUNITY TO THE ASSESSEE. WE SET ASIDE THIS ISSUE TO THE TPO/AO FOR FRESH CONSIDERATION. 34. THE NEXT COMPANY WHICH THE ASSESSEE SEEKS INCLU SION IS JINDAL INTELLICOM PVT. LTD. THIS COMPANY WAS EXCLUDED BY THE TPO ON THE GROUND OF FUNCTIONAL NON-COMPARABILITY. NO DETAILS OF FUN CTIONAL COMPARABILITY WAS POINTED OUT BEFORE THE DRP, THE DRP EXCLUDED THIS C OMPANY ON THE GROUND THAT ITS PROFITS IN BOTH IT & ITES AND SEGMENTAL DE TAILS WERE NOT AVAILABLE. IT WAS POINTED OUT BY THE LD. COUNSEL FOR THE ASSES SEE, WHILE DRAWING ATTENTION TO ANNUAL REPORT OF THIS COMPANY, THAT IT HAS ONLY ONE SEGMENT AND IT IS A WINDMILL SERVICE SEGMENT AND CONCLUSIONS OF DRP ARE INCORRECT. IN OUR VIEW, THIS ISSUE SHOULD ALSO BE LOOKED INTO BY THE TPO IN THE SET ASIDE PROCEEDINGS. WE ACCORDINGLY SET ASIDE THE ISSUE TO THE TPO FOR FRESH DECISION IN ACCORDANCE WITH LAW, AFTER OPPORTUNITY TO THE ASSESSEE. IT(TP)A NO.3134/BANG/2018 PAGE 20 OF 21 35. THE OTHER ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO NON-GRANT OF WORKING CAPITAL ADJUSTMENT. WE HAVE ALREADY HELD W HILE DECIDING THE TP ISSUE OF SWD SERVICES SEGMENT HELD THAT THE ASSESSE E SHOULD BE ALLOWED WORKING CAPITAL ADJUSTMENT. FOR THE REASONS STATED THEREIN, WE DIRECT THE AO/TPO TO ALLOW THE WORKING CAPITAL ADJUSTMENT AND FOR THIS PURPOSE THE ORDER OF THE CIT(A) IS SET ASIDE AND THE AO IS DIRE CTED TO ALLOW WORKING CAPITAL ADJUSTMENT IN ACCORDANCE WITH LAW AFTER AFF ORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 36. THE OTHER GROUNDS IN THE ITES SEGMENT WERE NOT PRESSED FOR ADJUDICATION. THE TPO IS DIRECTED TO COMPUTE THE AL P IN THE ITES SEGMENT AS PER THE DIRECTIONS GIVEN ABOVE AFTER AFFORDING A SSESSEE OPPORTUNITY OF BEING HEARD. 37. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JANUARY, 2020. SD/- SD/- ( A.K.GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 29 TH JANUARY, 2020. / DESAI S MURTHY / IT(TP)A NO.3134/BANG/2018 PAGE 21 OF 21 COPY TO: 1. APPELLANT 2. RESPO NDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.