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of <h1>Tribunal excludes companies from comparables, orders working capital adjustment for fair assessment.</h1> <h3>New River Software Services Pvt. Ltd. Versus. ACIT</h3> New River Software Services Pvt. Ltd. Versus. ACIT - [2015] 39 ITR (Trib) 415 (ITAT [Del]) Issues Involved:1. Exclusion of certain comparables from the list used for determining the Arm's Length Price (ALP).2. Denial of working capital adjustment.Issue-wise Detailed Analysis:1. Exclusion of Certain Comparables:Coral Hub (Vishal Information Technologies Ltd.):The Tribunal noted that Coral Hub's business model is based on outsourcing, with data entry charges constituting 84.52% of total expenditure and negligible personnel costs. This contrasts with the assessee's model, where salary costs are 54.67%. Given the substantial outsourcing by Coral Hub, it cannot be considered functionally comparable to the assessee, which primarily imparts high-end services. The Tribunal directed the exclusion of Coral Hub from the list of comparables.Eclerx Services Ltd.:The Tribunal examined whether Eclerx Services Ltd., a Knowledge Process Outsourcing (KPO) company providing data analytics and data processing solutions, could be compared to the assessee. Given that the assessee provided high-end services requiring detailed analysis and high standards of skill, the Tribunal found Eclerx functionally comparable to the assessee and upheld its inclusion in the list of comparables.Infosys BPO Ltd. and Wipro BPO Ltd.:The Tribunal considered the significant differences in turnover, economies of scale, brand value, and other factors between Infosys BPO Ltd. and Wipro BPO Ltd. and the assessee. The Tribunal noted that Infosys BPO Ltd. had a turnover 69 times that of the assessee, and Wipro BPO Ltd. had a turnover 97 times that of the assessee. Given these disparities and following the precedent set by the Hon'ble Delhi High Court in the case of Aginity India Technologies Pvt. Ltd., the Tribunal directed the exclusion of Infosys BPO Ltd. and Wipro BPO Ltd. from the list of comparables.2. Denial of Working Capital Adjustment:The Tribunal addressed the denial of working capital adjustment by the revenue authorities, who argued that there were no means to ascertain the working capital deployed by the comparables throughout the year. The Tribunal disagreed with this reasoning, emphasizing that opening and closing working capital are decisive factors for determining the working capital deployed. Citing the case of United Health Care Information Services Pvt. Ltd., the Tribunal underscored that working capital adjustments are essential for aligning the comparables and the assessee on the same footing. The Tribunal directed the AO/TPO to allow the working capital adjustment while determining the profit margins of comparables, subject to verification of the correctness of the amount claimed by the assessee.Conclusion:The Tribunal partly allowed the assessee's appeal, directing the exclusion of Coral Hub, Infosys BPO Ltd., and Wipro BPO Ltd. from the list of comparables and instructing the AO/TPO to allow working capital adjustment after proper verification.
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