Tribunal excludes high-turnover firms, remands comparability issue, and deletes working capital adjustment.

The Tribunal partly allowed the appeal by directing the exclusion of high-turnover companies from the comparables list, remanding the issue of BNR Udyog Limited's comparability for fresh examination, and deleting the negative working capital adjustment. The decision emphasized adherence to established precedents and the specific financial and operational context of the assessee.

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Issues Involved:
1. Application of Turnover Filter.
2. Comparability of BNR Udyog Limited.
3. Adjustment for Negative Working Capital.

Detailed Analysis:

1. Application of Turnover Filter:
The assessee argued for the application of an upper limit turnover filter, contending that companies with turnovers exceeding Rs. 200 crores should not be considered comparable. The Tribunal acknowledged that the assessee's turnover from ITES segment is around Rs. 9 crores, placing it in the 1 to 200 crores category. Citing precedents from the cases of "Autodesk India (P) Ltd. v. DCIT" and "Micro Focus Software India (P) Ltd. v. ACIT," the Tribunal directed the AO/TPO to exclude companies with turnovers exceeding Rs. 200 crores from the list of comparables. Consequently, Infosys BPO Limited, TCS E-Service Limited, and Excel Infoways Ltd. were excluded.

2. Comparability of BNR Udyog Limited:
The assessee contested the inclusion of BNR Udyog Limited, arguing it was not comparable. The Tribunal referred to previous decisions in "FNF India (P.) Ltd." and "Mobily Indotech India (P.) Ltd. v. Dy.CIT," which had restored the issue to the AO/TPO for fresh examination. The Tribunal noted that the functional differences and RPT (Related Party Transactions) filter at the segment level had not been adequately analyzed. Therefore, it remanded the matter back to the AO/TPO for a detailed re-examination, consistent with the directions in the cited cases.

3. Adjustment for Negative Working Capital:
The assessee objected to the TPO's adjustment for negative working capital, asserting that as a captive service provider with no borrowing, it bore no working capital risk. The Tribunal cited the "FNF India (P.) Ltd." case, which followed the Hyderabad Bench's decision in "Adaptec (India) P. Ltd. v. ACIT." It was held that a captive service provider, fully funded by its AE, does not bear working capital risks, and hence, no negative working capital adjustment should be made. The Tribunal directed the AO to delete the adjustment made towards negative working capital, aligning with the precedent that working capital adjustments should not apply to entities without working capital risks.

Conclusion:
The Tribunal partly allowed the appeal, directing the exclusion of certain high-turnover companies from the comparables list, remanding the issue of BNR Udyog Limited's comparability for fresh examination, and deleting the negative working capital adjustment. The judgment emphasized adherence to established precedents and the specific financial and operational context of the assessee.

Order pronounced on February 17, 2020.

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