Tribunal directs TPO on comparables. Working capital adjustment reconsidered.

The appeal was partly allowed. The Tribunal directed the Transfer Pricing Officer (TPO) to reconsider the comparability of Universal Print Systems Ltd. and exclude TCS E-Serve Ltd. from the list of comparables. The inclusion of BNR Udyog Ltd. and Excel Infoways Ltd. in the list of comparables was upheld. Additionally, the TPO was directed to reconsider the working capital adjustment while the appeal related to risk adjustment was dismissed.

---

---

Issues Involved:
1. Rejection of Selection of Comparables by the TPO.
2. Appropriateness of RPT Filter of More Than 25% of Sales.
3. Working Capital Adjustment.
4. Risk Adjustment.

Detailed Analysis:

1. Rejection of Selection of Comparables by the TPO:
The appellant objected to the inclusion of certain comparables selected by the TPO, specifically Universal Print Systems Ltd., TCS E-Serve Ltd., BNR Udyog Ltd., and Excel Infoways Ltd. The TPO had applied various filters, including the use of current year data and excluding companies with service income less than Rs. 1 crore, among others. The TPO rejected one of the three comparables selected by the appellant and included 12 new comparables. The final list of comparables included companies like Accentia Technologies Ltd., Infosys BPO Ltd., and others. The appellant challenged the inclusion of Universal Print Systems Ltd. on the grounds of functional differences, failing the IT export revenue filter, and high-profit margins. The Tribunal, following the decision in CGI Information Systems, remanded this comparable to the TPO for fresh adjudication.

Regarding TCS E-Serve Ltd., the appellant argued it was functionally different as it engaged in BPO services in banking, finance, and insurance domains. The Tribunal, referencing the decision in XL Health Corporation, directed the exclusion of this company from the list of comparables.

For BNR Udyog Ltd., the appellant contended it failed the RPT filter. The Tribunal, following the decision in CGI Information Systems, directed the inclusion of this company in the list of comparables.

Lastly, the appellant objected to Excel Infoways Ltd. on the grounds of high-end BPO services and failing the employee cost filter. The Tribunal, referencing the decision in CGI Information Systems, confirmed the inclusion of this company in the list of comparables.

2. Appropriateness of RPT Filter of More Than 25% of Sales:
The appellant challenged the appropriateness of the RPT filter of more than 25% of sales. The Tribunal did not find any specific arguments or evidence presented by the appellant to counter the TPO's application of this filter. As such, the Tribunal upheld the TPO's application of the RPT filter.

3. Working Capital Adjustment:
The appellant argued against the negative working capital adjustment made by the TPO. The Tribunal found merit in the appellant's contention, referencing the decision in NTT DATA India Enterprise Application Services, and held that there was no need for making any negative working capital adjustment. Thus, the Tribunal directed the TPO to reconsider the working capital adjustment.

4. Risk Adjustment:
The appellant made a claim for risk adjustment before the DRP, but no specific working of the risk adjustment was furnished. The DRP held that no accurate adjustment could be made in this case. The Tribunal found no reason to interfere with the DRP's findings and dismissed this ground of appeal.

Conclusion:
The appeal filed by the assessee was partly allowed. The Tribunal directed the TPO to reconsider the comparability of Universal Print Systems Ltd. and to exclude TCS E-Serve Ltd. from the list of comparables. The Tribunal upheld the inclusion of BNR Udyog Ltd. and Excel Infoways Ltd. in the list of comparables. The Tribunal also directed the TPO to reconsider the working capital adjustment and dismissed the ground of appeal related to risk adjustment.

---