Tribunal allows assessee's appeal, excludes companies, makes working capital adjustment. Revenue's appeal dismissed.

The Tribunal partially allowed the assessee's appeal by excluding Acropetal Technologies Ltd. and E-Infochips Ltd., including Maveric Systems Ltd., and allowing a working capital adjustment. The Revenue's appeal was dismissed as academic. The judgment was pronounced on February 11, 2019.

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Issues Involved:
1. Exclusion of functionally comparable companies.
2. Inclusion of companies not functionally comparable.
3. Exclusion of companies due to non-availability of segmental data.
4. Materiality of onsite and offsite revenue differences for functional comparability.
5. Exclusion of companies considered functionally comparable by the assessee.
6. Consideration of CBDT safe harbour guidelines regarding turnover criteria.
7. Inclusion of Maveric Systems Ltd. as a comparable.
8. Allowance of working capital adjustment.
9. Allowance of risk adjustment.
10. Arm's length price within +/- 5% range.
11. Timeliness of the Revenue's appeal.

Detailed Analysis:

1. Exclusion of Functionally Comparable Companies:
The Tribunal examined whether Acropetal Technologies Ltd. and E-Infochips Ltd. should be excluded as comparables. It was found that Acropetal Technologies Ltd. was not functionally comparable due to its significant intangible assets and R&D expenditure, and was excluded. Similarly, E-Infochips Ltd. was excluded because it was engaged in diversified activities including software development services, sale of software products, and IT Enabled Services without segmental breakup.

2. Inclusion of Companies Not Functionally Comparable:
The Tribunal upheld the exclusion of Acropetal Technologies Ltd. and E-Infochips Ltd. from the final set of comparables due to their functional dissimilarities with the assessee's business activities.

3. Exclusion of Companies Due to Non-Availability of Segmental Data:
E-Infochips Ltd. was excluded because it did not provide segmental data, which made it impossible to accurately benchmark the assessee's international transactions.

4. Materiality of Onsite and Offsite Revenue Differences:
The Tribunal did not specifically address the onsite and offsite revenue differences in detail, focusing instead on the functional comparability and availability of segmental data.

5. Exclusion of Companies Considered Functionally Comparable by the Assessee:
The Tribunal did not find merit in including companies that the assessee initially considered comparable but later contested due to functional differences and lack of segmental data.

6. Consideration of CBDT Safe Harbour Guidelines Regarding Turnover Criteria:
The Tribunal did not specifically address the CBDT safe harbour guidelines regarding turnover criteria in this judgment.

7. Inclusion of Maveric Systems Ltd. as a Comparable:
The Tribunal directed the inclusion of Maveric Systems Ltd. as a comparable. The TPO had initially rejected it based on export turnover and RPT filters, but the Tribunal found that it met the export turnover filter of 75.87%.

8. Allowance of Working Capital Adjustment:
The Tribunal allowed the working capital adjustment, following the precedent set in the assessee's case for the previous assessment year. This adjustment was directed to be made by the Assessing Officer.

9. Allowance of Risk Adjustment:
The Tribunal decided against the allowance of risk adjustment, thereby dismissing the assessee's ground of appeal on this issue.

10. Arm's Length Price Within +/- 5% Range:
The Tribunal noted that if the adjustments and inclusions/exclusions were made as directed, the assessee's margins would fall within the +/- 5% range of the mean margins of comparables, making further adjudication unnecessary.

11. Timeliness of the Revenue's Appeal:
The Tribunal condoned the 14-day delay in the Revenue's appeal filing, but found the grounds of appeal to be academic in nature due to the adjustments made in the assessee's appeal.

Conclusion:
The Tribunal partially allowed the assessee's appeal by excluding Acropetal Technologies Ltd. and E-Infochips Ltd., including Maveric Systems Ltd., and allowing working capital adjustment. The Revenue's appeal was dismissed as academic. The judgment was pronounced on February 11, 2019.

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