TaxTMI 
TaxTMI 
2026 (6) TMI 603
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....h delay. It is submitted that the delay occurred due to large pendency of income tax litigation, notices, scrutiny reports, revenue audit matters in the office of the revenue. It is further submitted that since several matters were time-bound, the present appeal could not be filed within the prescribed time. The Ld. DR, therefore, prayed that the delay be condoned in the interest of justice. 4. The Ld. AR, on the contrary, opposed the condonation of delay and submitted that the reasons stated in the affidavit are vague and general in nature. It was contended that mere pendency of work, notices, scrutiny proceedings and audits cannot constitute a sufficient cause for such an inordinate delay of 338 days. The assessee submitted that no specific details or supporting evidence have been furnished to justify the delay and there is clear lack of due diligence on the part of the Ld. DR. It was, therefore, prayed that the appeal filed by the Revenue be dismissed as time-barred. Nevertheless, the ld. AR left the issue at the discretion of the Bench. 5. We have considered the rival submissions of both the parties and perused the materials placed on record. It is an admitted fact that t....
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....on technical grounds but because it is capable of removing injustice and is expected to do so. 5.3 The Hon'ble Supreme Court has repeatedly observed that refusal to condone delay in appropriate cases may result in perpetuating injustice on purely technical grounds, even when the appellate authority is otherwise competent to correct the error. Hence, if the application for condonation of delay is rejected despite the existence of reasonable cause, it would amount to allowing an injustice to continue merely on account of technicalities. In view of the above and considering the interest of justice, we deem it appropriate to condone the delay of 338 days in filing the appeal by the Revenue. Accordingly, the delay is condoned and the appeal is admitted for adjudication. Now Coming to Revenue's appeal 6. Ground Nos. 1 to 6 raised by the revenue are interconnected and pertains to exclusion of comparables by the Ld. CIT(A) viz. CG VAK, ICRA, L&T, Tech Mahindra, Mindtree and Persistent Systems when the same being functionally comparable and difference in turnover. 7. The brief facts of the case on hand are that the assessee, a private limited company, is engaged in the business ....
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....a) Ltd. (b) Mindtree Ltd. (Segment) 9.2 Thereafter, the TPO applied own filter and selected 07 additional comparable companies inclusive of 2 assessee's comparables. The final TPO's comparables are detailed as under: (a) CG-VAK Software & Exports Ltd. (b) ICRA Techno Analytics Ltd. (c) Larsen & Toubro Infotech Ltd. (d) Mindtree Ltd. (Segment) (e) Persistent Systems Ltd. (Segment) (f) R S Software (India) Ltd. (g) Tech Mahindra Ltd. (Segmental) 9.3 The average PLI/margin of the comparable companies was computed by the TPO at 20.90%. Thereafter, the TPO made a negative working capital adjustment of 0.78%, resulting in an adjusted margin of 21.68% for the SWD segment. Based on the said adjusted margin, the TPO made an upward transfer pricing adjustment of Rs. 14,61,86,295 in respect of the SWD segment. 10. Aggrieved by the order of the AO/TPO, the assessee preferred an appeal before the Ld. CIT(A). SWD Segment 11. The assessee before the Ld. CIT(A) submitted that the TPO erred in selecting certain comparable companies which performs different functions and hence are not a valid comparable. 12. Wi....
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....rsified operations, including intellectual property-led business activities, and does not have proper segmental information. The assessee further submitted that the company has undergone extraordinary events during the year, including various acquisitions, which have resulted in inorganic growth, thereby affecting its financial results. 12.5 It was also pointed out that the company is significantly involved in research and development activities, which materially impact its profitability and make it functionally dissimilar to the assessee. The assessee further submitted that the said company has already been rejected as a comparable in its own case by the Hon'ble Tribunal for A.Y. 2009-10 and also by the office of the Ld. CIT(A) for A.Ys. 2010-11 and 2011-12 on the ground of functional dissimilarity. In support of its contentions, the assessee placed reliance on various judicial precedents including its own case for A.Y. 2009-10 in ITA No. 67/Bang/2015, as well as decisions in the cases of Citrix R&D India Pvt. Ltd. [111 taxmann.com 78] for A.Y. 2013-14, ST-Ericsson India Pvt. Ltd. [TS-1301-ITAT-2018 (DEL)] for A.Y. 2013-14, EPAM Systems India Pvt. Ltd. [TS-1311-ITAT-2018 (HYD)-....
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.... as enumerated below: S. No. Name of Comparable CIT(A) Order 1. CG-VAK Software & Exports Limited Relied on the decision of ITAT, Bengaluru in the cases of ARM Embedded Technologies (P.) Ltd. vs. DCIT (129 taxmann.com 263) and Tavant Technologies India (P.) Ltd. vs. DCIT for A.Y.2013-14 (120 taxmann.com 122) 2. ICRA Techno Analytics Limited Relied on the decision of ITAT, Bengaluru in the cases of Herbalife International Inaldia (P.) Ltd. vs. ACIT for A.Y.2013-14 (139 taxmann.com 200) and M/s GXS India Technology Centre (P.) Ltd. vs. ACIT (139 taxmann.com 377) for A.Y.2013-14 3. Larsen & Toubro Infotech Ltd Relied on the decision of ITAT, Bengaluru in the cases of Herbalife International India (P.) Ltd. vs. ACIT for A.Y.2013-14 (139 taxmann.com 200) 4. Mindtree Ltd. (Seg) Relied on the decision of ITAT, Bengaluru in the cases of Meritor CVS India (P.) Ltd. vs. ITO for A.Y.2013-14 (141 taxmann.com 448) 5. Persistent Systems Ltd. Relied on the decision of ITAT, Bengaluru in the case of M/s Finastra Software Solutions (India) (P.) Ltd. vs. ACIT (135 taxmann.com 308) for A.Y.2013-14 6. Tech Mahindra Limited (Seg.) Relied on....
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.... to the assessee, being engaged in diversified activities such as product development, intangibles, high-end services or having absence of reliable segmental data. 15.1 The assessee further submitted that the Ld. CIT(A) has followed binding decisions of the jurisdictional ITAT for the same assessment year and has rightly applied settled principles of comparability. It was argued that the exclusion is based on material differences and not on minor variations, and therefore the approach adopted by the Ld. CIT(A) is in accordance with law. It was thus prayed that the order of the Ld. CIT(A) be upheld. 16. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The issue under consideration relates to the exclusion of certain comparables in determining the arm's length price under TNMM for the Software Development Services segment. 16.1 We note that the Ld. CIT(A) has excluded certain comparables, namely CG-VAK Software & Exports Ltd., ICRA Techno Analytics Ltd., Larsen & Toubro Infotech Ltd., Persistent Systems Ltd., Tech Mahindra Ltd. and Mindtree Ltd., primarily on the ground of functional dissimilarity and other....
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....ly not comparable cannot be retained merely on the ground that it was allegedly accepted at an earlier stage. 21.1 On merits, we find force in the contention of the assessee that the said company is engaged in both software development services and ITeS/BPO activities. From the annual report, it is evident that there is no reliable segmental information available. As pointed out by the assessee, the segment disclosure is only on geographical basis (refer pages 19, 29 and 30 of the Annual Report), and even in the notes to accounts under revenue from operations, no segment-wise bifurcation between SWD and ITeS is provided. Further, the information obtained by the TPO u/s. 133(6) also indicates that the company is engaged in both SWD and ITeS activities. 21.2 We also note from the annual report (refer page 6) that the company is expanding its operations and is engaged in outsourced product development. This, coupled with the fact that the company has incurred substantial expenditure on research and development, shows that its functional profile is materially different from that of the assessee, which is a routine captive service provider. 21.3 Further, the company has shown a....
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....ompany owns substantial intangible assets, including business rights amounting to Rs. 9,80,50,000 and intangibles under development, which together constitute around 15.39% of its total intangible asset base (refer page 641 of the Annual Report). The presence of such significant intangibles indicates that the company operates as a full-fledged entrepreneurial entity with higher risk profile, unlike the assessee, which is a routine captive service provider. 22.1 Further, though the annual report refers to three segments namely (i) services cluster, (ii) Industrial Cluster and (iii) Telecom Segment, there is no clarity regarding the exact nature of services rendered under each segment, thereby affecting the reliability of segmental comparability. It is also not in dispute that the company enjoys significant brand value both globally and in India, which has a direct bearing on its profitability and pricing power, and therefore renders it not comparable to the assessee. We also note that there are issues in computation of margins, as the TPO has not considered foreign exchange loss while computing the margin. On such correction, the margin works out to 26.02% as against 26.06% compu....
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.... for comparability. However, we find merit in the contention of the assessee that reliance on consolidated financial statements does not provide a true and reliable basis for comparability. As per Rule 10B(2)(d) of the Rules, geographical and market conditions are relevant factors, and consolidated results, which aggregate operations across multiple jurisdictions, do not reflect the specific economic conditions applicable to the tested party. 24. On merits, we find that the company fails the RPT filter applied by the TPO itself. The assessee has demonstrated, with reference to pages 69 to 74 of the Annual Report, that the related party transactions constitute 44.97% of sales, which is far in excess of the acceptable threshold of 25%. The contention of the TPO that RPT should be computed either on revenue or expense side does not alter the fact that the level of related party transactions is materially high, thereby affecting the reliability of the company as a comparable. 24.1 We further note that the company has undergone extraordinary events during the year, including acquisitions (refer page 6 of the Annual Report), which would have an impact on its financial results and m....
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....ersistent Systems Ltd. 24.5 At the outset, we note that the TPO has held that product development is nothing but software development services and therefore treated the company as comparable. However, on perusal of the materials placed on record at page 51 of 105 of assessee's submission before the Ld. CIT(A), we are unable to agree with such a broad proposition. 24.6 On merits, we find that the said company is primarily engaged in software product development and allied activities. As pointed out by the assessee, the annual report (refer page 164) as well as information available in the public domain clearly indicate that the company is engaged in product-based business. Further, under the business strategy section of the Persistent Group (refer page 82 of the AR), the company itself states that its traditional line of business is servicing product development companies under the head "product engineering services", which is qualitatively different from routine contract software development services rendered by the assessee. 24.7 We also note that the company is engaged in diversified activities such as technology consulting, platform-based solutions and IP-led business (....
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....red view that Persistent Systems Ltd. cannot be regarded as a valid comparable. Accordingly, we find no infirmity in the order of the Ld. CIT(A) in directing exclusion of the said company. Mindtree Ltd. (Segment) 25. At the outset, we note that the assessee had initially accepted this company as comparable during the TP proceedings. However, before the Ld. CIT(A), the assessee sought exclusion of the said company on the ground that it fails the turnover filter. In our considered view, there is no estoppel in transfer pricing proceedings and the issue of comparability has to be examined on merits based on the facts and circumstances of the case. 26. On merits, we find that Mindtree Ltd. is a large-scale company having turnover of Rs. 1640.81 Crores which is substantially higher than that of the assessee. The co-ordinate benches of the Tribunal have consistently held that companies having exceptionally high turnover and scale of operations cannot be compared with captive service providers operating at a relatively smaller scale, as such companies enjoy advantages in the nature of economies of scale, brand value and market penetration, which materially influence profitability....
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....echnologies Ltd. 29. The brief facts are that the assessee had selected M/s Akshay Software Technologies Ltd. as a comparable in its TP study report for the software development services segment. The said company is appearing in the assessee's TP study report in the final set of comparables with OP/TC margin of 7.63%. 29.1 However, during the TP proceedings, the TPO rejected the said company on the ground that, based on information obtained u/s. 133(6) of the Act, it was engaged in professional services, procurement, installation, implementation, support and maintenance of ERP products and services in India and overseas, and therefore its functional profile was different from that of the assessee. 30. Aggrieved by order of the TPO, assessee preferred an appeal before the Ld. CIT(A). 31. Before the Ld. CIT(A), the assessee submitted that Akshay Software should be included as a comparable in the SWD segment. It was submitted that the company is functionally comparable, as its activities of professional services, ERP implementation, support and maintenance are in the nature of software development services. 32. The assessee further submitted that almost the entire reven....
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....taxmann.com 78] for A.Y. 2013-14 & prayed the order of Ld. CIT(A) be upheld. 36. We have carefully considered the rival submissions and perused the materials available on record. The issue for consideration is whether the Ld. CIT(A) was justified in directing inclusion of Akshay Software in the final set of comparables and whether such inclusion amounts to cherry picking in the context of transfer pricing analysis. 36.1 At the outset, we note that there are divergent views expressed by coordinate benches on this issue. In Concur Technologies (India) (P.) Ltd. vs. Assistant Commissioner of Income-tax, reported in [2025] 180 taxmann.com 447 (Bangalore - Trib.) dated [11-11-2025], the Tribunal has emphasised that inclusion of comparables outside the search matrix may amount to cherry picking and disturb the comparability process. Similar reasoning is found in SAP India (P.) Ltd. vs. Deputy Commissioner of Income-tax reported in [2025] 180 taxmann.com 631 (Bangalore - Trib.) dated [17-11-2025] and Hydro BS India (P.) Ltd. vs. Deputy Commissioner of Income-tax reported in [2025] 178 taxmann.com 229 (Bangalore - Trib.) dated [04-09-2025], wherein it has been held that insertion of ....
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....dia. 36.5 Similarly, the TPO cannot rely upon the search matrix to justify selection or rejection of comparables without undertaking proper FAR analysis. Mechanical application of filters or superficial examination of comparables, without analysing their actual functions and financials, would also amount to cherry picking, as held in IG Infotech and Quicklogic Software. Accordingly, the following principles emerge: • The search matrix is a guiding tool and provides a structured starting point, but it is not conclusive. • Functional comparability under FAR analysis is the primary test for inclusion or exclusion. • Inclusion of comparables outside the search matrix is not impermissible per se, but such inclusion must be supported by cogent reasoning, demonstration of functional similarity, and an explanation as to why such comparable did not emerge in the search process or why the search itself is inadequate. • Where no such explanation is provided and the search process and filters are not challenged, inclusion of new comparables would amount to cherry picking. • Conversely, rejection of comparables solely on the gr....
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.... the functional comparability and margin computation require factual verification, we deem it appropriate to restore this comparable to the file of the AO/TPO for fresh examination. 36.9 The AO/TPO shall examine the functional profile of Akshay Software Technologies Ltd., its revenue streams, annual report, information obtained u/s. 133(6) of the Act, applicable filters and margin computation. If the company is found to be functionally comparable and satisfies the filters applied by the TPO, the same shall be included in the final set of comparables. Needless to say, reasonable opportunity of being heard shall be granted to the assessee. Accordingly, this issue is allowed for statistical purposes. 37. Ground No. 8 raised by revenue relates to inclusion of Spry Resources India Pvt. Ltd. 38. The brief facts are that the assessee had selected M/s Spry Resources India Pvt. Ltd. as a comparable in its TP study report for the Software Development Services segment, wherein it was shown with working capital adjusted OP/TC margin of 5.42% 39. The TPO rejected M/s Spry Resources India Pvt. Ltd. on the ground that, as per the balance sheet for the year ending 31.03.2013, the compa....
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...., which is highly irregular and not normally seen in ordinary business operations. Such abnormal financial position raises serious doubt on the reliability of its margins and makes it unsuitable for comparability analysis. 43.2 It was further submitted that the Ld. CIT(A) has erred in treating the said company as functionally comparable without properly appreciating this abnormal circumstance. Accordingly, the Ld. DR prayed that the direction of the Ld. CIT(A) to include Spry Resources India Pvt. Ltd. be reversed. 44. Per contra, the Ld. AR supported the order of the Ld. CIT(A) and submitted that Spry Resources India Pvt. Ltd. was rightly directed to be included in the final set of comparables. It was submitted that the assessee had selected this company in its TP study report itself and, therefore, there was no question of cherry picking. The Ld. AR further submitted that the TPO had not pointed out any functional dissimilarity and had rejected the company only on the ground that its trade receivables were high. It was contended that high trade receivables, by itself, cannot be a ground to reject an otherwise functionally comparable company, unless it is shown that the same ....
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....s. 9 to 11 are interconnected and pertains exclusions by the Ld. CIT(A) with regard to comparables namely M/s Harton Communication Ltd, Capgemini Services India Pvt Ltd and Infosys BPO Ltd. (ITeS Segment) 47.1 The relevant facts are that the assessee benchmarked its international transactions under IteS segment by adopting TNMM as MAM and by considering PLI as OP/TC which arrived at 12.02%. The assessee for the comparability analysis under SWD segment selected 09 comparables and computed PLI 13.52%. 47.2 However, the TPO during the assessment proceeding rejected 07 comparables out of 09 comparables selected by the assessee. The assessee's comparables accepted by the TPO are detailed as under: (a) Infosys BPO Ltd. (b) Jindal Intellicom Ltd. 47.3 Thereafter, the TPO applied own filter and selected 07 additional comparable companies exclusive of 2 assessee's comparables. The final TPO's comparables are detailed as under: (a) Acropetal Technologies Ltd. (b) Microgenetic Systems Ltd. (c) Jindal Intellicom Ltd. (d) Hartron Communications Limited (Segment) (e) Microland Ltd. (f) Capgemini Business Services (I....
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....hat the company is functionally different from a captive service provider due to its brand value, diversified activities and group synergy benefits. The assessee relied on the decision in International Specialty Products (I) (P.) Ltd. vs. Income-tax Officer, Ward-2 (1), Hyderabad [2015] 54 taxmann.com 251 (Hyderabad - Trib.)/[2015] 37 ITR(T) 787 (Hyderabad - Trib.)[07-01-2015], wherein Infosys BPO was rejected as comparable on account of size, brand value and diversified activities. The assessee also referred to OECD guidance on group synergies and submitted that Infosys BPO, being part of the Infosys group, enjoys brand advantage which affects its profitability. 49.4 The assessee further submitted that Infosys BPO fails the export revenue filter applied by the TPO which comes out to be 74.06% only as against 75%. It was also pointed out that in assessee's own case for A.Y. 2009-10, the Bangalore Tribunal had rejected Infosys BPO as comparable, and in assessee's own case for A.Y. 2010-11, the Ld. CIT(A) had also excluded Infosys BPO as comparable. Accordingly, the assessee prayed for exclusion of Infosys BPO Ltd. from the final set of comparables. 49.5 The Ld. CIT(A) after co....
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....upported the order of the Ld. CIT(A) and submitted that the comparables excluded by the Ld. CIT(A) were not proper comparables to the assessee's ITeS segment. It was submitted that Hartron Communications Ltd. had abnormal financial results during the year, with a steep increase in BPO segment revenue and earlier year losses, making its margin unreliable. In respect of Capgemini Business Services India Pvt. Ltd., the Ld. AR submitted that the company failed the RPT filter, as its related party transactions were far above the permissible threshold. As regards Infosys BPO Ltd., it was submitted that the company was functionally different, had significant brand value, group synergy advantage, large scale of operations and also failed the export revenue filter. The Ld. AR therefore submitted that the Ld. CIT(A) had rightly excluded these companies and the order deserves to be upheld. 54. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The issue under consideration relates to exclusion of certain comparables in determining the arm's length price under TNMM for the ITeS segment. 54.1 We note that the Ld. CIT(A) ha....
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....ubmitted that F.Y. 2012-13 was an abnormal year for Hartron Communications Ltd. It was pointed out that total revenue increased from Rs. 21.38 crores in the preceding year to Rs. 33.12 crores during the year, showing an increase of 154.84%. More importantly, the BPO segment revenue increased from Rs. 3.81 crores in the preceding year to Rs. 18.43 crores during the year under consideration, showing abnormal growth of 483.72%. The assessee also submitted that the BPO segment had incurred losses in earlier years, and therefore such sudden increase in revenue and profitability indicated abnormal circumstances. 55.3 The assessee further submitted before the Ld. CIT(A) that Hartron Communications Ltd. had diversified operations and was not a routine ITeS/BPO service provider. It was pointed out that the company was engaged in BPO, software development, technology solutions and medical billing, and therefore its functional profile and revenue model were not comparable with that of the assessee. The assessee also relied upon judicial precedents, including ISG Novasoft Technologies Ltd. 105 taxmann.com 381 and other decisions, to submit that Hartron Communications Ltd. should be excluded....
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....m. 56.3 However, before us, the assessee has filed a detailed computation to demonstrate that the actual related party transactions are far in excess of the permissible limit. As per the chart submitted, the related party transactions comprise trade mark, methodology and information support of Rs. 1,32,27,082, bank guarantee charges of Rs. 4,58,647, revenue from related parties of Rs. 382,51,76,701 and expenses from related parties of Rs. 41,07,56,814. The total related party transactions thus work out to Rs. 424,96,19,244 as against total sales of Rs. 516,22,18,012, resulting in RPT to sales of 82.32%. 56.4 The assessee has further demonstrated that if RPT income and RPT expenses are separately examined, related party income itself is Rs. 382,51,76,701 as against total sales of Rs. 424,96,19,244, resulting in RPT income ratio of 90.01%. Similarly, related party expenses are Rs. 42,44,42,543 as against total expenses excluding finance cost of Rs. 472,55,80,364, resulting in RPT expense ratio of 8.98%. Thus, even on this basis, total related party influence is substantial and far exceeds the threshold applied by the TPO himself. 56.5 In our considered view, the purpose of R....
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....t only increases revenue. The export filter objection was also rejected by the TPO. In the quantitative analysis, the TPO considered sales of Rs. 1,831.3 crores, export earnings of Rs. 1,675 crores constituting 91.46% of sales, RPT of Rs. 300 crores constituting 16% of sales, and OP/OC at 29.55%. 57.3 Before the Ld. CIT(A), the assessee submitted that Infosys BPO Ltd. cannot be considered as a comparable to a captive service provider due to its brand value, diversified activities and group synergy benefits. The assessee relied on the decision in International Specialty Products (I) (P.) Ltd. vs. Income-tax Officer, Ward-2 (1), Hyderabad [2015] 54 taxmann.com 251 (Hyderabad - Trib.)/[2015] 37 ITR(T) 787 (Hyderabad - Trib.)[07-01-2015], wherein Infosys BPO was rejected as comparable on account of size, brand value and diversified activities. The assessee also referred to the OECD guideline on group synergies and submitted that Infosys BPO, being part of the Infosys group, enjoys significant brand advantage and group support, which has an impact on its profitability. The assessee further contended that Infosys BPO fails the export revenue filter and pointed out that in assessee's o....
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.... assessee. It has significant selling, marketing and brand building expenses, brand value. Infosys BPO is an industry giant and commands a very high brand value in the market and also bears all related risk and cannot be compared to the assessee which is a captive service provider. Further, since it commands a very high brand value it enjoys premium pricing. The aforesaid company is therefore directed to be excluded from the list of comparable companies." 57.7 We further note that before us the assessee has filed a specific working to demonstrate that Infosys BPO Ltd. fails the export revenue filter applied by the TPO. As per the chart submitted, revenue from operations of Infosys BPO Ltd. is Rs. 18,313,377,884, whereas earnings in foreign currency are Rs. 13,562,369,842. Thus, the export revenue to total revenue ratio works out to 74.06%, which is below the 75% export revenue filter adopted by the TPO. The assessee has also referred to page 2192 and page 2211 of the Annual Report and page 86 of the appeal set in support of the said computation. In our view, once the TPO has himself applied the export revenue filter, a company failing such filter cannot be retained in the final ....
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....206/Hyd/2014, A.Y. 2009-10, wherein the Tribunal directed the TPO not to make negative working capital adjustment. The assessee also relied on the decision of Bangalore Tribunal in Lam Research (India) Pvt. Ltd. vs. DCIT, IT(TP)A Nos. 1385 & 1437/Bang/2014, A.Y. 2009-10, wherein it was held that negative working capital adjustment cannot be made where the assessee is a captive service provider rendering services to its AE. Further reliance was placed on Software AG Bangalore Technologies Pvt. Ltd. vs. DCIT, IT(TP)A No. 1628/Bang/2014, A.Y. 2010-11 and Capco IT Services India Pvt. Ltd. vs. ITO, IT(TP)A No. 1340/Bang/2011, A.Y. 2007-08. Accordingly, the assessee prayed that the TPO be directed not to make negative working capital adjustment. 60.3 The Ld. CIT(A) noted that the assessee had challenged the negative working capital adjustment made by the TPO on the ground that the TPO had considered erroneous receivables and payables of the assessee as well as of the comparable companies, thereby arriving at an incorrect working capital adjustment. 60.4 The Ld. CIT(A) further noted that the assessee had relied on the decision of the Bangalore Tribunal in GXS India Technology Centre....
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....ng no negative working capital adjustment be upheld. 64. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The issue under consideration is whether the Ld. CIT(A) was justified in directing the AO/TPO not to make negative working capital adjustment. We note that in both the SWD and ITeS segments, the TPO has computed working capital adjustment in negative figures in both SWD and ITeS Segment. The so-called working capital adjustment has operated against the assessee by increasing the arm's length margin. 64.1 The contention of the Revenue is that working capital adjustment has been computed scientifically as per Rule 10B of the Income-tax Rules, 1962, and once such computation results in a negative figure, the same has to be given effect to. We are unable to accept this contention in the facts of the present case. The object of working capital adjustment is to neutralise material differences in the levels of receivables, payables and inventory between the tested party and comparable companies. It is intended to improve comparability and not to artificially enhance the margin of comparables against a captive s....
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....s no working capital risk since the assessee is working on a cost plus model. The co-ordinate Bench of the Tribunal in the case of e4e Business Solutions India (P.) Ltd. (supra) had in detailed discussed the entire concept of negative working capital adjustment and why it should not be made. The said order of the Tribunal has also discussed in detail, the case of Technotree Convergence relied on by the learned DR (para 9 of e4e Business Solutions India Private Limited). 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 (P.) Ltd. (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 (P.) Ltd. (supra) is correct and no interference is called for. It is ordered accordingly. 64.4 In our considered view, if the computation of working capital adjustment results in a positive adjustment to neutralise differences, the same....
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....rom the annual report to show that the company derives revenue from software services, product and technology licensing, and installation and commissioning services. 71.3 The assessee further submitted that Sasken passes all the filters applied by the TPO. It was pointed out that Sasken had net sales of Rs. 362.71 crores, export revenue to sales of 84.39%, employee cost to sales of 68.89%, positive net worth of Rs. 369 crores, no different financial year issue, and RPT is of only 4%. The assessee also submitted that Sasken operates in two segments, namely software services and software products, and segmental information is available. 71.4 The assessee submitted that revenue from the software services segment was Rs. 34,887 lakhs, constituting 96.18% of total segment revenue, whereas software product revenue was only Rs. 1,384 lakhs, being 3.82%. Therefore, Sasken substantially qualifies the 75% revenue from software development services filter. The assessee requested that only the software services segment should be considered for comparability. As per the assessee's working, the segmental OP/TC of the software services segment was 4.26% only. The assessee also submitted tha....
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....ither be decided on the basis of materials available on record or restored to the file of the AO/TPO for fresh examination in accordance with law. 75. Per contra, the Ld. DR submitted that the Ld. CIT(A) cannot be faulted for not adjudicating Sasken Communication Technologies Ltd. and Informed Technologies India Ltd., since the assessee has not demonstrated that these companies were valid comparables satisfying all filters applied by the TPO. It was submitted that inclusion of any comparable requires proper FAR analysis and cannot be allowed merely because the assessee seeks inclusion at appellate stage. 75.1 The Ld. DR further submitted that if the Tribunal is inclined to consider these comparables, the matter may be restored to the file of the AO/TPO for fresh verification of functional comparability, filters, segmental data and margin computation in accordance with law. 76. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The grievance of the assessee is that the Ld. CIT(A) has not adjudicated the specific plea for inclusion of two comparables, namely Sasken Communication Technologies Ltd. and Informed....