2021 (3) TMI 1400

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..... submitted that the assessee is pressing ground No.12 relating to exclusion of 2 comparable companies and ground No.13 relating to negative working capital adjustment made by the TPO. All other grounds were not pressed by Ld. A.R. The Ld A.R further submitted that the additional grounds do not require adjudication, if the assessee gets relief in respect of above said two issues. 2. The assessee is wholly owned subsidiary of IDS Inc. and it is engaged in the business of providing software development services in the field of leasing, loan accounting and portfolio management solutions. It has entered into agreement for provision of software development services to its A.Es, viz., IDS Inc. & IDS U.K. The assessee selected TNM method as most ....

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....s by following the decision rendered by the Delhi Bench of Tribunal in the case of Agilis Information Technologies (India) Pvt. Ltd. (2018) 89 Taxmann.com 440. The discussion made in respect of these two companies in the case of Agilis Information Technologies (India) Pvt. Ltd. are extracted below:- "(b) Larsen & Toubro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. v. ACIT (2016) 67 taxmann.com 155 (Del-Tri). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L&T Infotech Ltd., was a software product company and segmental information on SWD services was not available. The Tribunal ....

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....isks. The relevant observations made by the co-ordinate bench are extracted below:- "12. The third issue is with regard to grant of negative working capital adjustment. Working capital adjustment is made for the time value of money lost when credit period is given to customers. It is the submission of the ld. counsel for the assessee in this case that the assessee is a captive unit which is entirely funded by the AE. The assessee has no borrowings and is fully compensated by the parent on a total cost plus. The assessee has no working capital risk - in other words, it is a risk-insulated service provider to the parent. The only customer of the company is its parent company. The ld. counsel for the assessee has relied on a host of ITAT dec....

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....used due to differences in the terms of purchase and sale, levels of inventory etc. For example: If the business advances a trade credit of (say) 60 days, its cash gets locked up for 60 days and reduces the working capital. It will have to borrow from open market to meet its working capital requirement, and hence incur expenses. Similarly, if it avails of trade credit of 60 days, it has surplus cash at its disposal. It will need to borrow less money to fund operational requirements. Hence, working capital position affects the additional cost incurred by a business by way of interest on borrowing from the open market. Working capital adjustments seeks to adjust for the differences in time value of money between tested parties and potential c....