TaxTMI 
TaxTMI 
2022 (8) TMI 1283
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....ax Act. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act was issued. During the course of assessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transactions entered by the assessee with its Associated Enterprises (AEs). The TPO, vide his order dated 24.10.2019, passed u/s 92CA of the I.T.Act proposed the Transfer Pricing adjustment of a sum of Rs.2,37,17,678 in respect of SWD segment. Pursuant to the TPO's order, draft assessment order was passed incorporating the above TP adjustment. The assessee preferred objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 26.03.2021, disposed of the objections of the assessee. Pursuant to the DRP's directions, the TP adjustment was marginally reduced to Rs.2,27,47,410. Consequent to the DRP's directions, final assessment order was passed on 29.03.2021. 4. Aggrieved by the final assessment order, the assessee has filed the present appeal before the Tribunal. Several grounds are raised by the assessee. However, during the course of hearing, the learned AR had only pressed grounds 2.4, 2.....
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....e Pvt. Ltd. 14.50% 3. C.G-V A K Software & Exports Ltd. 16.71% 4. Mindtree Limited 20.61% 5. R S Software (India) Limited 20.87% 6. Nihilent Limited 26.36% 7. Larsen & Toubro Infotech Ltd. 27.12% 8. Inteq Software Pvt. Ltd. 28.20% 9. Persistent Systems Ltd. 30.89% 10 Infobeans Technologies Ltd. 32.42% 11 Aspire Systems (India) Pvt. Ltd. 34.65% 12 Thirdware Solution Ltd. 34.65% 13 Infosys Limited 38.61% 14 Cybage Software Pvt. Ltd. 65.84% 35th Percentile 20.87% Median 27.66% 65th Percentile 32.42% 6. The computation of adjustment in SWD Segment as per the DRP's directions are as follows:- Particulars As per DRP's directions Taxpayers operating cost 17,96,79,377 Taxpayers PLI 15.00% 35th Percentile Margin of comparable set 20.87% Adjustment Required (if PLI<35th Percentile) Yes Median Margin of comparable set 27.66% Arm's Length Price 22,93,78,693 Price Received 20,66,31,283 Shortfall being adjustment 2,27,47,410 7. In ground 2.4, the assessee is seeking application of....
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....Limited on the ground of functional comparability. The learned AR has submitted that the company is engaged in diversified activities towards software engineering in the nature of Customer Application Development, Content Management Systems, Enterprise mobility, big data analytics, etc. Further, on the basis of the strength of the ruling in the case of Red Hat India Private Limited v. NFAC, Delhi in ITA No.1379/Mum/2021 for assessment year 2016-2017 (order dated 25.02.2022), the assessee has sought for the exclusion of this company as a comparable (para 49 and 50 of that order). 12. The learned Departmental Representative has placed reliance on the jurisdictional Tribunal in the case of BORQS Software Solutions Private Limited v. ACIT (supra). 13. We have heard rival submissions and perused the material on record. On perusal of the financial of Infobean Technologies Limited (the relevant portion of financial are placed on record), it is clear that the said company is engaged in providing software engineering services primarily in Custom application development, Content Management Systems, Enterprise Mobility, big data analytics (The company's overview is annexed to this order....
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....2016-17]- at para 7.4 (on account of functional dissimilarity as company earns revenue from export of goods and segmental details are unavailable). (iii) GlobalLogic India (P.) Ltd. V. DCIT(reported in [2022] 134 taxmann.com 35- for AY 2016-17) (on account of functional dissimilarity as the company is into diversified activities which are not comparable to routine SWD service provider) (iv) Red Hat India Pvt. Ltd. v. I TO, NFAC (Order dated 25.05.2022 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 1379/Mum/2021 for AY 2016-17)- at paras 49 and 50 (on account of functional dissimilarity as company renders diverse services and lack of segmental details). (v) Skillnet Solutions India Pvt. Ltd. v. DCIT (Order dated 24.02.2021 passed by the Mumbai Bench of this Hon'ble Tribunal in ITA No. 6570/Mum/2017 for the AY 2013-14)- at para 6 (on account of functional dissimilarity as the company renders diverse services and segmental details are unavailable) (vi) Alcatel Lucent India Ltd. v ACIT (Order dated 29.11.2019 passed by the Delhi Bench of this Hon'ble Tribunal in ITA No. 4706/0el/2018 for AY 2014-15)- at para 15 (on account....
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....mparable companies as they are operating in the business of software development and therefore required to be included in the final list of comparables. Akshay Software Technologies Limited has been rejected by TPO on the ground that the company is not functionally comparable as it is engaged in the provision of professional service, procurement, installation, implementation, support and maintenance of ERP products and services. The learned AR has claimed that the DRP has not adjudicated on functional compatibility and has not considered it comparable merely because it does not appear in the TPO's search matrix. The learned AR has submitted that Akshay Software Technologies Limited earns a majority of its income (approximately 96.58%) from rendering software development services. Reference has been made to page 3993 of the paper book. Reliance has been placed on the ruling of the Tribunal in the case of Continental Automotive Components (India) Private Limited v. ACIT in IT(TP)A No.713/Bang/2017 (order dated 24.11.2021) and NXP India Private Limited v. DCIT in IT(TP)A No.692/Bang/2017 and IT(TP)A No.2861/Bang/2017 (order dated 27.04.2021). 17. The learned Departmental Representa....
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....basis of rejection of the relief by the DRP is no longer valid. The relevant findings of the Tribunal in the case of M/s.Huawei Technologies India (P) Ltd. (supra) read as follows:- "15. In the present case the TPO allowed working capital adjustment accepting the calculation given by the Assessee. The CIT (A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons: (i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year. (ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being sk....
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....ng made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT (A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the CIT (A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT (A) is also not sustainable. 17. In the light of the above discussion we are of the view that the CIT (A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT (A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may al....