TaxTMI 
TaxTMI 
2018 (2) TMI 1783
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....besides developing telecom software. For the assessment year 2008-09, the assessee filed their return of income on 30.9.2008 declaring a total income of Rs. 47,08,17,570/-. The case was selected for scrutiny. Matter was referred to the Ld. TPO for determination of the Armed Length Price of the International Transaction, and the Learned TPO by order dated 31.10.2011 determined a sum of Rs. 38,36,90,639/- as the transfer pricing adjustment u/s 92CA basing on which the learned AO made an addition to that effect. Besides this, learned AO made the following additions also: Disallowance of claim of exemption u/s 10AA to the extent of Rs.15,93,92,715/- Disallowance of excess depreciation claimed on UPS Rs.1,44,75,008 Disallowance of employees contribution to Provident Fund Rs.19,25,243/- Disallowance of TDS recoverable written off Rs.2,83,86,834/- Disallowance of penalty expenses Rs.4000/- Disallowance u/s 40(a)(i) Rs.6,91,99,702/- 3. Assessee carried the matter before the learned DRP. In respect of transfer pricing adjustment, learned DRP excluded one M/s Cybermet Info....
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.... finality, the plea of the assessee cannot be entertained. 6. It is the argument of the learned AR that the equipment in respect of which the depreciation at 60% is claimed does not function on their own and for deriving any functionality they must be connected to the computer equipment, as such, they are part and parcel of the computer systems in respect of which depreciation at 60% has to be allowed. He placed reliance on the decisions reported in BSES Yamuna [2013] 358 ITR 47 (Delhi); Nokia India (P.) Ltd. vs. ACIT [2012] 22 taxmann.com 109 (Delhi - Trib.) & [2012] 20 taxmann.com 810 (Delhi); ACIT vs. Timex Watches Ltd [2016] 71 taxmann.com 177 (Delhi - Trib.); GE Capital Business Process Management Services (P.) Ltd. vs. ACIT [2015] 64 taxmann.com 156 (Delhi - Trib.) in support of his contentions. 7. In BSES Yamuna (supra) the Hon'ble jurisdictional High Court has held as under:- "6. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server, etc., form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the compu....
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....eivables written off account. In respect of this amount, neither the TDS certificate is received nor were the reasons for such shortfall like any deficiency of service known at that time. When the TDS certificate was issued to the assessee in respect of the same for TDS credit claim, then the assessee is treating the difference of the TDS receivables and the TDS certificate issued, as bad debts and writing off such bad debts in their accounts under the provisions of 36(1)(vii) and claiming the expense under section 36(2) of the Act. 12. Record reveals that the assessee claimed before the learned AO that the expense on account of this written off bad debts has to be allowed or in the alternative, the same may be allowed to the assessee as a business loss. However, learned AO was of the view that the unclaimed TDS does not form part of the P&L account and the assessee has the right to recover the same. In first appellate proceedings, assessee claimed to have produced the party wise and year-wise break up of TDS recoverable written off supported by the undertakings of one of the directors of the company stating that the income corresponding to th....
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.... as and when the services are rendered or goods are dispatched and subsequently, whether the assessee written off the difference amount of deficit payment and the amount under the TDS certificate issued, in their books of accounts. It would be conveniently verified by the learned AO and if he finds that initially the assessee recognized the total invoice amount and subsequently, identified the bad debt with reference to the deficit payment by the party and the amount under TDS certificate issued. On verification of compliance with these two conditions, learned AO will allow this expense. Ground Nos.3 and 3.1 are allowed for statistical purposes. 15. Grounds No. 4 to 4.2 are in respect of the allocation of common expenses to the unit claiming benefit u/s 10A. It is the argument of the learned AR that vide para 5.2, learned AO observed that in the absence of details provided by the assessee, travelling expenses of the directors and legal and professional expenses incurred by the company, 5% of the total travelling expenses which may be relatable to the director's travelling needs to be apportioned amongs....
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....disallowance u/s 40A(i) of the Act, the learned AO found from para 13.8 to the notes of accounts that the assessee had incurred expenditure in foreign currency under the head 'royalty' to the tune of Rs. 4.25 crores and other to the tune of Rs. 16.55 crores. There is no dispute in respect of the royalty expenditure. The break up figure relating to the other expenditure of Rs. 16.55 crore shows that out of such amount, an amount of Rs. 4,35,81,838/- was in respect of the unit claiming deduction under section 10A of the Act, which the Ld. AO disallowed, and Rs. 12,19,74,482/- was in respect of other business not entitled to any tax holiday benefit. Again, out of this Rs. 12,19,74,482/-, learned AO satisfied with the explanation of the assessee except in relation to two expenses. One is Rs. 72,74,728/- classified under the head 'Repairs' and Rs. 1,83,43,136/- under the head 'accruals in respect of projects'. Therefore, the dispute under this ground revolves around the deduction of Rs. 4,35,81,838/- claimed in respect of 10A of the Act, Rs. 72,74,728/- in respect of repairs and Rs. 1,83,43,136/- in respect of accruals in respect of projec....
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....e, equally to disallowance under section 40(a)(i) as well. In this view of the matter, in terms of the CBDT circular (supra), the appeal filed by the Assessing Officer, on this point, is indeed not maintainable. As regards the point made by the learned counsel that the non-deduction of tax at source from payments made to the non-residents must be dealt with at a different level, and bearing in mind the need to protect our tax base, we can only point out that lapses with respect to tax withholding obligations from payments made to non-residents is visited with several type of consequences- disallowance under section 40(a)(i), recovery under section 201, penalty under section 271C and, in certain situations, even prosecution under section 276B. What we are dealing with right now is a limited aspect of the matter having impact on computation of taxable income, and while dealing with this limited aspect of the matter, we must not bother about the considerations which are not germane to this context. As for the present context, the issue raised in the appeal, given the settled legal position, is wholly academic and revenue neutral, and, in the light of the CBDT instructions which bind a....
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....p; 26. In so far as the accruals in respect of projects is concerned, the case of the assessee is that the said amount represents provisions created in the books of accounts in respect of accruals made for various ongoing projects, as the invoices in respect of concerned supplies/expenses are not received at the end of the year, the same were provided as accrued in the books of accounts, immediately upon receipt of the invoice from identifiable parties, tax withholding in respect of the said amount is made and credited the same in the books of accounts. It is submitted that immediately upon deduction of tax, other compliances like issuance of certificate, furnishing of prescribed quarterly statements are made. 27. Learned AO rejected the contentions of the assessee stating that the details of nature of services of accruals in respect of projects have not been furnished and therefore, it cannot be claimed that these are not for technical services. It is the argument of the learned AR that these are the amounts on an estimate basis where the parties in respect of various ongoing projects were not identified and the invoices in respect of conc....
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....een shot of SAP entries for creation of provision for project accruals are produced and this evidence clearly establish that year end provisions were reversed in subsequent years. It is further submitted that the provision was created to follow the matching concept of accounting entries in accordance with accounting standards, without actual identity of payees being known. He further submitted that there is no dispute from the revenue that the said expenses are otherwise allowable for tax purposes. Basing on this, he submitted that in the absence of requirement of withholding tax at source, no disallowance is warranted under section 40(a)(i) of the Act. 30. On a careful consideration of the contentions, we are of the considered opinion that inasmuch as the payees are not identifiable, it would not be possible for the assessee to deposit any TDS even in case of its deduction. We are, therefore, deem it just and proper to direct the learned AO has to verify from the evidence to be produced by the assessee relating to the creation of provisions for project accruals and the year end reversal of such provisions, and accordingly to delete the disall....
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.... the arm's length range of +/-5%. 34. Learned TPO accepted TNMM as the most appropriate method and also the PLI. The limited difference in approach adopted by the TPO and the Assessee was with respect to selection of comparables. During the course of assessment proceedings, the Assessee submitted updated margins of 14 comparable companies. 35. However, learned TPO rejected 4 comparables selected by the Assessee and selected remaining 10 comparables. Further, learned TPO performed a detailed analysis and introduced additional 15 comparables, thereby selected a final set of 25 comparables with a PLI of 28.16%. Accordingly, transfer pricing adjustment of Rs. 38,36,90,639 was made. However, subsequently, as stated above, learned TPO in compliance to the directions issued by the Dispute resolution Panel (DRP) passed supplementary order wherein Cybermate Infotek Limited was excluded from the final set of comparables and made final TP adjustment at INR 31,77,69,775 in respect of international transaction related to provision of software development services. 36. Assessing Officer ("learned AO") framed assessment and passed final assessment order under section 143(3) o....
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....& Matheson Information Technology Ltd., I Gate Global Solutions Ltd, Mindtree Limited, Quintegra Solutions Limited for the assessment year 2007-08 and, therefore, it is not open for the assessee to dispute such comparables for this assessment year. 40. Learned AR placed reliance on the decision reported in Rampgreen Solutions (P.) Ltd. vs. CIT [2015] 377 ITR 533 (Delhi), Chryscapital Investment Advisors (India) (P.)Ltd. vs. DCIT [2015] 376 ITR 183 (Delhi) and submitted that the functionality of an entity is the key determinative factor for its inclusion or exclusion from the list of comparables and there is no such thing as estoppel on the ground of assessee accepting the entity as functionally comparable in a previous assessment year. 41. On a careful perusal of the decisions relied upon by the assessee, we find ourselves in agreement with the submission that in order to decide the comparability of an entity, the key determinative factor is its functionality but not the acceptance or rejection by any of the parties. Consent does not make an otherwise functionally dissimilar entity, a better comparable. We, therefore, find it difficult to r....
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....ng observations : "15.2. We find from the Annual report of this company that it: "has only one segment, namely, software development. Being a software solutions company, which is engaged in providing open and end-to-end web solutions, software consultancy, design and development of solutions, using the latest technologies." Thus, it can be seen that this company is providing end-to-end solutions and also consultancy which is not the case with the assessee company. Another relevant factor to be noticed is Page 1254 of the paper book, which divulges the significant accounting policies of this company. Under the head 'Revenue recognition', it has been mentioned that: "revenue from software development is recognized based on software developed and billed to clients." As against this, the Schedule forming part of the accounts of the assessee company provides for revenue recognition in the terms: "revenue from software developed is recognized over the contracted period of development on cost plus basis." It can be seen that there is a lot of difference in the revenue and recognition models of the assessee was well as Bodhtree Consulting Ltd. This factor, in addition to the funct....
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....and IT enabled services, but from schedule 8 it is found that both the segments are clubbed under the heading 'income from software services'. This clearly shows that no separate segmental information is available in respect of software development and IT enabled services. Further, it is submitted on behalf of the assessee that the Ld. DRP rejected this comparable in respect of the year 2010-11 in assessee's own case on the ground of functional dissimilarity, and held that the company is engaged in high-end technology driven services and product development. We also found from page numbers 111 and 116 of the paper book that the entity level profitability was taken into consideration and no segmental bifurcation of cost is available. 52. It is not in dispute on behalf of the revenue that the Ld. DRP rejected this company as a comparable in respect of the assessment year 2010-11 on the ground of functional dissimilarity holding that the company is engaged in highend technology driven services and product development. Having regard to this fact coupled with the situation that no segmental data is available in respect of the software development and the IT enabled servic....
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....s simply engaged in rendering software development services and there is no sale of any software products, this company, in our considered opinion, ceases to be comparable. It is obvious that from the common pool of income from both the streams of software products and software services, one cannot deduce the revenue from software services and no one knows the impact of revenue from Products on the overall kitty of profit, which may be significant. Since no segmental data of this company is available indicating operating profit from software development services, we order to exclude this company from the list of comparables." 57. It is further submitted on behalf of the assessee that Ld. TPO has erred in taking the entity level profitability. The sales figure taken by the TPO is Rs. 24.03Crores, which includes the revenue from software services as well as income from sale of software products. In the light of same, it is apparent that the PLI arrived at by the TPO is incorrect as same does not represent the margin of the software segment, as no segmental data is available. 58. In the light of above, we are satisfied that E-Infochips Limited is fu....
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....t-changing environments. E-learning makes training highly efficient, by making it available anytime, anywhere and reduces total cost of training. E-learning is used to train employees, customers and service technicians on product knowledge, concepts, strategies, risk and finance, compliance and technology." 25. Ostensibly, the aforesaid services involve setting up of support centres and remote maintenance, which have been duly categorized as ITES by the CBDT's Circular dated 26.09.2000 itself, which has been reproduced by the TPO in the impugned order. Therefore, even the said segment is not to be included as part of the software development services, as asserted by the assessee. Once the segment of application support and infrastructure management services are removed along with the exclusion of E-learning and Digital consulting segment, then the income of the said concern from software development services falls below 75% of its total income and therefore, it deserves to be excluded even on the basis of the filter applied by the TPO. Thus, on this aspect, assessee succeeds." 62. Since this company is engaged in a diversified fields and deriving revenues from dif....
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.... Ltd. v DCIT [2016] 67 taxmann.com 279 (Pune - Trib.) (AY 2008-09) to the effect that Goldstone Technologies Ltd. was engaged in the activities related to Media & IP TV and further, the company had carried inventory of set top boxes and movie rights in its Balance Sheet for the previous year, and it has to be excluded from the final set of comparable. The coordinate Bench in the judgment of Emptoris (supra), ordered to exclude this comparable company by making following observations:- "17. The learned Authorized Representative for the assessee pointed out that before the DRP, it was pointed out that the said concern Goldstone Technologies Ltd. was engaged in the activities related to Media & IP TV and further, the company had carried inventory of set top boxes and movie rights in its Balance Sheet for the previous year. In addition, the said company had some income from sale of industrial material. Looking at the services provided by the said concern, it is clear that the same are functionally dissimilar to the services provided by the assessee and there is no merit in comparing the results of the said concern while benchmarking the international transaction of the assesse....
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....ividend is recognized on receipt basis. Unbilled revenue primarily comprises the revenue recognized in relation to efforts incurred up on fixed price, fixed time frame contracts until the balance sheet date." 72. Reliance has been placed on order passed by this Tribunal in the case of PTC Software (India) Private Limited [2017] 86 taxmann.com 122 (Pune - Trib.) (AY 2008-09), wherein, it was found that Helios & Matheson Information Technology Ltd. is engaged in rendering ITES including BPO services, Offshore delivery, Project management services, etc. and that this company was functionally incomparable to software development firms by making following observations:- "15. The ld. Counsel for the assessee submitted that the third company that should be excluded from the final list of comparables is Helios & Matheson Information Technology Ltd. The said company should be excluded on the ground of functional disparity. The ld. Counsel contended that Helios & Matheson Information Technology Ltd. is engaged in rendering ITES including BPO services, Offshore delivery, Project management services, etc. Therefore, the services rendered by Helios & Matheson Information Te....
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.... 75. On the ground of functional dissimilarity the assessee objected the inclusion of this company in the set of comparables, but the Ld. TPO proceeded to include the same on the ground that it passed all the filters. 76. A reading of the segmental reporting to be found at page No. 531 of the paper book shows that the company is engaged in providing information technology services, contact centre services and IT enabled services, delivered to customers globally across the geographies, they were to being performed on-site and offshore. A reading of the financials to be found at page number 498, 509 and 511 shows that the financial statements lack in providing the segmental results. Further, the heading "subsidiaries and joint ventures" at page No. 499 and the heading "Merger of iGate Technology Services Private Limited" at page No. 507 show that in addition to the same, it is pertinent to note that there has been an exceptional event during the year, i.e. the company is wholly owned subsidiary iGate Technology Services Private Limited has been amalgamated and accordingly, the financials include the effect of the same. 77. Considering the non-availability o....
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....tely no doubt that Infosys Technologies Ltd. is not comparable with the assessee company. Respectfully following the judgment of the Hon'ble jurisdictional High Court in Agnity India (supra), we hold that Infosys Technologies Ltd., cannot be treated as comparable with the assessee company. This company is, therefore, directed to be excluded from the list of comparables." 80. The diversified activities of business, its deployment of capital, resources and the brand name make this company not comparable with the assessee and, therefore, this company has to be excluded from the final set of comparable companies for benchmarking international transaction related to software segment. Kals Information Systems Limited (Segmental) 81. At the outset it is brought to our notice that this company was considered by a coordinate bench of this tribunal in the immediately preceding year that is assessment year 2007-08 in assessee's own case and this Tribunal rejected this company to be included as a comparable to the assessee. 82. On a perusal of the order dated 18.5.2016 in ITA No. 5837/Delhi/2011 in assessee's own case, we find that this company was considered by this Tribunal....
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....s not providing any training under this segment, which has been rather included by the assessee in the second category of the assessee's business, namely, 'Software Deployment, Training, Consultancy and Equipment Rental.' Since the assessee's activity under this segment does not include any revenue from training, but the revenue of Kals Information Systems Ltd., for the purpose of comparison includes income from training, this company ceases to be comparable with the assessee's segment of `Software development services'. Similar view has been taken by the Tribunal in the assessee's own case for the immediately preceding assessment years 2006-07 and 2007-08. Respectfully following the precedents, we hold that Kals Information Systems Ltd. (Seg.) should be expunged from the set of comparables." 84. No change of circumstances is brought to our notice either by the assessee ot the revenue, as such we do not find any reason to take a different view from the view taken by this Tribunal for the earlier year. We, therefore, consequently hold that this company is not a valid comparable to that of the assessee and has to be excluded from the final set of comparable companies for benchmark....
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.... this company is into the manufacturing and product engineering services, besides which dealing with banking, financial services, insurance, energy and petrochemicals etc. Note No. 18 of the Notes on Account under the heading segmental reporting shows that segmental reporting of revenues of this company are on the basis of geographical location of the customers, but not on the functional segmental. Profit and loss account at page No. 838 of the paper book shows that the revenue is bifurcated under the head software development services and products on geographical basis like overseas and domestic. 90. In view of the huge capital base, resources and other factors this company cannot be a comparable to the assessee and has to be excluded from the final list of comparable companies for benchmarking international transaction related to software segment. Mindtree Limited 91. Assessee sought the exclusion of this company on the ground of functional dissimilarity. However Ld. TPO included it on the ground that this company is deriving revenue from both software as well as ITES and sufficient segmental information is not available in the financial statements. Under the head "the b....
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....the paper book shows that the income from the sale of software services and products is bundled up, the schedule No. 11 forming part of profit and loss account at page No. 1160 shows the segmentation on the basis of overseas and domestic. Item number 'L' at page No. 1166 under the heading "segment reporting policies" reads that the company has disclosed the segment information only on the basis of the consolidated financial statements which shall be presented together with the unconsolidated inertial statements. 96. Further, in support of their plea that a company which is engaged in software development services, but, at the same time is also a software product company, is not a good comparable with the assessee, assessee placed reliance on Aircom (supra), in order to exclude this comparable company. The coordinate bench has rejected this comparable by making following observations:- "19.2. We have heard the rival submissions and perused the relevant material on record. It can be seen from the information supplied by this company u/s 133(6) of the Act, a part of which has been reproduced in the TPO's order, that this company 'has developed a few of its ow....
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....lly dissimilar to that of the Assessee as the company is engaged in providing end to end solutions and also deals in software products as well. 99. The overview of the company at page No. 1238 of the paper book clearly shows that this company is providing a full range of custom IT solutions (such as Development, Testing, Maintenance, ACAP, Product Engineering and Infrastructure Management Services), Proprietary Software Products and Consultancy Services in IT on various platforms and technologies. It also shows that this company combines horizontal expertise in IT with its vertical experience developed by working in a wide range of industries. 100. Further, from the table of fixed assets at schedule 5 incorporated at page No. 1260 it is clear that there has been an exceptional circumstance during the year, i.e. the company has acquired intellectual property rights in the nature of copyrights. 101. The Assessee has placed reliance on Aircom (Supra) wherein, this comparable has been excluded on account of holding copyrights for the year under consideration. Relevant extracts from the order has been reproduced hereunder: "20.1. The assessee initiall....
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....that this company is not a pure software service provider but is engaged in development and sale of products and on the ground excludable from the final set of comparable companies for benchmarking international transaction related to software segment. Softsol India Limited (verifiable) 105. The Assessee objected this company from the list of comparable while preparing its TP study on the ground of related party transactions and also basing on the statement in the annual report to the effect that this company is a provider of e-commerce, network technology, Internet infrastructure and other special technology areas and has diverse client base ranging from large customers to small high-tech start-up companies. 106. Ld. TPO observed that the company at present is in various areas of software development industry and what is stated above in the annual report is a futuristic statement. Ld. TPO referred to para 2.1 to be found on page No. 1533 of the paper book to the effect that no inventory is held, since the company is engaged in developing software and providing IT solutions. This fact evidences that this company is confined only to software development and no yet int....
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....design and engineering (mechanical design with a focus on industrial design) and Visual Computing Labs (Animation and Visual Effects). Since this company offers integrated hardware and packaged software solutions, the same cannot be considered as comparable with the assessee company, which is simply providing software related services. The Tribunal in Toluna India Pvt. Ltd. VS. ACIT (2014) 151 ITD 177 (Delhi) and Motorola Solutions India Pvt. Ltd. (supra), both of which were rendering software development services, has treated this company as functionally not comparable. We, therefore, order for the exclusion of this company from the list of comparables." 111. No change of circumstances is brought to our notice either by the assessee or by the revenue, as such, by respectfully following the reasoning of this Tribunal in assessee's own case for the immediately preceding year, we conclude that this company is not a suitable one to be continued in the set of comparables. We therefore direct the exclusion of this company from the final set of comparable companies for benchmarking international transaction related to software segment. COMPARABLE COMPANIES SOUGHT TO BE INCLUDED BY ....
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....ervation made herein before." 114. Reliance in this regard is placed on another order of the co-ordinate bench in the case of Tata McGraw Hill Education (P.) Ltd. vs. ACIT [2016] 69 taxmann.com 418 (Delhi - Trib.) wherein it has been held as under:- "22. As regards CG VAK Software & Exports Ltd., the objections of ld. TPO were that this comparable was functionally not comparable to the tested party as it had employee compensation less than 25% and hence it failed employee cost filter. 23. Before ld. DRP the assessee pointed out that the employee cost (cost of services) as percentage of total revenue of the company was 75.55%. Ld. DRP did not accept the assessee's contention that cost of services should be taken as remuneration to employees by observing that in the annual report of the company there was no expense such as 'salary cost' or 'remuneration to employees' in its P&L A/c. Ld. DRP observed that assessee was drawing conclusions on the basis of unsubstantiated presumptions and whenever there is doubt about the functional comparability, it is better to drop such comparable rather than indulging in presumptions. Ld. DRP did not accept th....
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.... comparables selected by TPO." 115. We have gone through the Annual Report of the assessee company for the year 2008. In schedule 15 thereof incorporated at Pg. 21 of the hand out under the head "Cost of services" there is a mentioning of the amounts of Rs. 2,46,69,456/- & 1,78,34,926/-. Since there is no separate expenditure shown under the heading "salary/remuneration", the subhead "cost of service" invariably refers to employees cost. In view of the findings of a coordinate bench of this Tribunal in SAIC (supra), we find that this cost of service was towards employees remuneration. With this view of the matter, we set aside this issue to the file of the Ld. TPO/AO to apply the employee cost filter correctly and if it is found that the employee cost is more than 25% then this comparable is to be included in the list of comparables selected by the Ld. TPO. SIP technologies Limited: 116. This company selected by the assessee was rejected by the TPO on the ground of diminishing revenues. Ld. DRP also held that the companies having diminishing revenues/persistent losses for the previous 3 years were exceptions and refused to interfere with....
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....accepted by the Delhi High Court and various benches of this Tribunal. In a recent order passed by the coordinate bench in case of Aithent Technologies (P.) Ltd. vs. DCIT [2016] 74 taxmann.com 214 (Delhi-Trib.) on the adoption of diminishing revenue filter it has been held as under:- "14.3 A careful perusal of the pattern of profit/loss earned by the assessee as per its audited accounts divulges that as against the current year's profit of Rs. 62.39 lac, the earlier years' profit was Rs. 92.74 lac. This manifests that the profit for this year has diminished from the earlier year. When we consider the figures of losses for the financial years 2005-06 and earlier years, it comes to light that there were losses right from financial year 2002-03 up to 2005-06. On an overview of the above extracted Table, it can be seen that the assessee's profit is not steady, but, has diminished during the instant year from the preceding year. In such a situation, if we exclude the companies having diminishing profits, it would mean that the companies whose profit pattern is also similar to that of the assessee would face the axe. Doing so would mean excluding the comp....
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....oncern or huge or "mega" turnover company. As explained earlier, Rule JOB (2) guides the six methods outlined in clauses (a) to (f) of Ride 10B(1), -while judging comparability. Rule JOB (3j on the other hand indicates the approach to be adopted where differences and dissimilarities are apparent. Therefore, the mere circumstance of a company - otherwise conforming to the stipulations in Rule 10B (2) in all details, presenting a peculiar feature - such as a huge profit or a huge turnover, ipso facto does not lead to its exclusion. The TPO, first, has to be satisfied that such differences do not "materially affect the price...or cost"; secondly, an attempt to make reasonable adjustment to eliminate the material effect of such differences has to be made.'" In light of the above, we direct the TPO to include this company in the list of comparables." 120. With regards to Revenue's stand that SIP technologies need to be rejected on the ground that it suffered losses, it is submitted on behalf of the assessee that for the filter of persistent losses to come into play it should be shown that the comparable under dispute has incurred losses for three preceding years....
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....ices and training are available. Further, software testing is only a part of software development in which the assessee is, and software testing cannot be compared to the whole segment of development of software. 125. With this view of the matter we do not find this company to be a good comparable to the assessee and on this premise we reject the contention of the assessee. Findings of the Ld. TPO and the Ld. DRP are confirmed. WORKING CAPITAL ADJUSTMENT: 126. It is submitted on behalf of the assessee that the TPO has not given working capital adjustment to account for difference in working capital employed by the Assessee. While rejecting the objections raised by the assessee, Ld. DRP observed that ".... To carry out the adjustment, the availability of relevant information to accurately identify the difference and then quantify impact of such difference is a pre-requisite. In this case, we only know the amount of working capital deployed by the comparables on the first and last day of the accounting period. We have no means to ascertain the working capital deployed by the comparables through the year. In fact, the working capital adjustment should be comput....
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....y the assessee vis-a-vis the comparable companies for software development services is required to be considered. Similarly making of suitable adjustments to account for differences in the risk profile of the assessee vis. a vis. the comparable companies for software development services is also required to be considered. Of course these adjustments on account of working capital and risk is to be made after analyzing the case of the assessee since it depends upon the facts of the case of the assessee. The request for such adjustments cannot be summarily rejected unless some analysis of the case of the assessee is made vis-a-vis comparables companies. We thus set aside the matter to the file of the Ld. TPO/AO to consider these aspect of adjustment while deciding the issue afresh vis-a-vis the comparable companies in the business of software development as discussed hereinabove in the present order of the Tribunal. It is needless to mention over here that while considering these aspects opportunity would be given to the assessee to present its case in this regard. The assessee is required to cooperate with the Ld. TPO in furnishing the details, break up, datas, etc. or any o....
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....usted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;" ........." The ld. counsel has further submitted that the Hon'ble Delhi, ITAT has also upheld the need of making working capital adjustment in following judgments. Mentor Graphics (Noida)(P.) Ltd. v. Dy. CIT [2007] 109 ITD 101/18 SOT 76 (Delhi) Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 (Delhi) Thus in light of the provisions of Rule 10B(1)(e) and the Hon'ble ITAT judgments, it has been pleaded to grant the Appellant the benefit of working capital adjustment. 5.3 Ld. Departmental Representative on the other hand relied upon the order of the TPO. 5.4 The DRP in its order has not dealt with the issue properly and has held that for the sake of consistency and to protect the interest of the revenue, the adjustment made by the TPO has to be upheld. 6. We have carefully considered the submissions in light of the material ....