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of <h1>Appeal allowed in part: Comparable exclusion, turnover filter reconsideration, working capital adjustment rejected.</h1> <h3>M/s. TRX Technologies India Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle 5 (1) (1), Bangalore.</h3> M/s. TRX Technologies India Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle 5 (1) (1), Bangalore. - TMI Issues Involved:1. Exclusion of certain comparables (Accentia Technologies Ltd., Acropetal Technologies Ltd., ICRA Online Ltd., Jeevan Scientific Technology Ltd., and Mindtree Ltd.) from the list of comparables.2. Non-reduction of the working capital adjustment from the final ALP margin.3. Non-following of the DRP's directions regarding the turnover filter.Detailed Analysis:1. Exclusion of Certain Comparables:The primary issue raised by the assessee was the inclusion of certain companies as comparables which were functionally different from the assessee's business. The companies in question were Accentia Technologies Ltd., Acropetal Technologies Ltd., ICRA Online Ltd., Jeevan Scientific Technology Ltd., and Mindtree Ltd. The assessee argued that these companies were not comparable due to functional dissimilarity and other reasons such as lack of segmental information and failure to meet the turnover filter.The Tribunal noted that the assessee had initially selected some of these companies in its TP Study but later sought their exclusion. The Tribunal referred to several precedents, including the Bangalore Bench of Tribunal in the case of Aspect Technology Centre (India) Pvt. Ltd. Vs. ITO and the Special Bench order in DCIT Vs. Quark Systems Pvt. Ltd., which allowed the exclusion of such companies based on functional dissimilarity or other valid reasons.The Tribunal concluded that the companies in question were indeed functionally dissimilar and directed the AO/TPO to exclude M/s. Acropetal Technologies Ltd. (Seg.), M/s. Accentia Technologies Ltd., ICRA Online Ltd., and Jeevan Scientific Technology Ltd. from the list of comparables.2. Non-Reduction of Working Capital Adjustment:The assessee contended that the AO/TPO erred in not reducing the working capital adjustment of 1.47% from the final ALP margin, as specified in the TPO order. However, the Tribunal noted that this issue was not raised before the DRP and suggested that it should have been addressed through a Rectification Application. Consequently, the Tribunal rejected this ground.3. Non-Following of DRP's Directions on Turnover Filter:The DRP had directed the exclusion of companies with turnover lower than Rs. 1 Crore and higher than Rs. 200 Crores from the comparability analysis. However, the AO/TPO did not follow these directions, leading to the inclusion of the ALP adjustment proposed by the TPO in the final assessment order.The Tribunal emphasized that the directions of the DRP had become final in the absence of an appeal by the revenue. Therefore, the AO/TPO was directed to examine whether Infosys BPO Ltd., Mindtree Ltd., and I-Gate Global Solutions Ltd. should be excluded based on the turnover filter specified by the DRP.Conclusion:The Tribunal partially allowed the appeal, directing the exclusion of certain comparables and the re-examination of others based on the turnover filter. The ground related to the working capital adjustment was rejected. The judgment underscores the importance of functional similarity in selecting comparables and adherence to DRP directions.
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