TaxTMI 
TaxTMI 
2021 (11) TMI 1056
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....ument to only the following four issues, namely, (i) assessee is seeking to exclude (a) Infosys BPO Limited and (b) TCS E-Serve Limited from the list of comparables (ground 3), (ii) depreciation adjustment (ground 4), (iii) negative working capital adjustment (ground 7), and (iv) deduction of educational cess (additional ground). 2.1 We shall adjudicate the above issues as under: Exclusion of Infosys BPO Limited & TCS E-Serve Limited (Ground 3) 3. The Tribunal in its earlier order dated 31.10.2017 had remanded the issue to the TPO for exclusion of two comparables, namely, Infosys BPO Limited and TCS E-Serve Limited. In fresh TP proceedings, the TPO held that these two companies are comparable to the assessee. The Dispute Resolution Penal (DRP) confirmed the action of the TPO. 3.1 Aggrieved, the assessee has raised this issue before the Tribunal. The learned AR submitted that these two companies are not comparable to the assessee since they are functionally dissimilar. In this context, the learned AR relied on the order of the Tribunal in the case of Indecomm Global Services (India) Private Limited in IT(TP)A No.185/Bang/2018 (order dated 28.09.2019). 3.2 The learned D....
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....into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the submissions of the ld. counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPQ Ltd. in the market, the company incurs substantial selling and marketing expenditure whereas the assessee being a contract service provider does not incur such expenses to maintain its brand has not been controverted by them. Further, Infosys BPO Ltd. being a subsidiary of Infosys has an element of brand value associated with it. This can be further confirmed by the presence of brand related expenses incurred by Infosys BPO Ltd. Further, Infosys BPO Ltd. has acquired Australian based company M/s Portland Group Pty Ltd. during financial year 2011-12. They provide sourcing and category management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting comp....
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....ibunal in the case of XLHealth Corpn. India (P.) Ltd. (supra). The relevant findings of the Tribunal are as under: " . . . We have heard the rival submissions and perused the material on record. From the perusal of the Annual Report of this entity placed at page Nos. 583 to 678 of paper book, at page No. 604 it is stated as under. "2. COMPANY OVERVIEW IT(TP)A No.185(B)/2018 Your Company, along with its subsidiary companies - TCS e-Serve International Limited and TCS e-Serve America Inc., is primarily engaged in the business of providing Business Process Services (BPO) for its customers in Banking, Financial Services and Insurance domain. The Company's operations include delivering core business processing services, analytics & insights (KPO) and support services for both data and voice processes. Your Company is an integral part of the Tata Consultancy Services' (TCS) strategy to build on its 'Full Services Offerings' that offer global customers an integrated portfolio of services ranging from IT services to BPO services. The Company provides its services from various processing facilities, backed) a robust and scalable infrastructure network tailored to mee....
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....ed to grant depreciation adjustment on some other extraneous issues. The DRP confirmed the action of the TPO and tried to apply depreciation ratio to turnover as a parameter of comparison. According to the learned AR, directions of the Tribunal are unambiguous and both the TPO and the DRP has not followed the directions of the Tribunal. 4.2 The learned Departmental Representative, on the other hand, supported the orders of the Income Tax Authorities. 4.3 We have heard rival submissions and perused the material on record. The Tribunal in its earlier order had restored the issue to the AO / TPO with specific directions. The relevant finding of the Tribunal reads as follows:- "17. The Tribunal has taken a consistent view that wherever different rates of depreciation are charged in the case of assessee as well as the comparables, the depreciation adjustment should be allowed. In the instant case, the learned counsel for the assessee had tried to demonstrate that the rate of depreciation charged in the case of assessee and the comparables are different. Therefore we are of the view that let this matter be re-examined by the TPO / AO and if they notice that the rates of depreciation ....
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....aterial on record. It is settled position of law that negative working capital adjustment cannot be made for captive service providers. The Bangalore Bench of the Tribunal in the case of ACIT v. e4e Business Solutions India Private Limited (supra), after elaborately considering the judicial pronouncements on the subject, had held as follows:- "14. The CIT(A) has given a finding that the assessee is captive service provider and is operating on cost plus basis. Since the entire revenue of assessee was from its AE's, the CIT(A) held that negative working capital adjustment is not appropriate by relying on the order of the Bangalore Bench of the Tribunal in the case of Lam Research India Pvt. Ltd. v. DCIT in IT(TP)A No.1437 & 1385/Bang/2014 (order dated 30.04.2015). The relevant observation of the CIT(A) reads as follows:- "11.1 In relation to working capital adjustment, it is observed that the appellant is a captive service provider in the Software Development Segment. It is operating on cost plus basis and the entire revenue in this segment is from AE. So the decision of Bangalore Bench of ITAT in the case of Lam Research India Private Limited (supra) is squarely applicable to it....
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....d). Since the assessee in this case does not have working capital loans / borrowings and entails no working capital risks, the ratio decidendi in the case of e4e Business Solutions India Private Limited (supra) directly applies to the assessee and no working capital adjustment should be made. Therefore, the CIT(A)'s conclusion that no negative working capital adjustment is to be made by placing reliance on the order of the Bangalore Bench of the Tribunal in the case of Lam Research India Private Limited (supra) is correct and no interference is called for. It is ordered accordingly." 5.4 Admittedly in this case, the assessee is a captive service provider and it is operating on cost plus basis. Therefore, following the order of the Tribunal in the case of ACIT v. e4e Business Solutions India Private Limited (supra), we hold that there should not be any negative working capital adjustment. It is ordered accordingly. Therefore, ground 7 is allowed. Deduction of Educational Cess (additional ground) 6. The additional ground raised does not require investigation of new facts and it is purely legal ground. Therefore, placing reliance on the judgment of the Hon'ble Apex Court in the ca....