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Income Tax Appellate Tribunal, ‘J‘ BENCH
Before: SHRI AMIT SHUKLA & SHRI, M.BALAGANESH
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2018-19 preferred by the order against the final assessment order passed by the Assessing Officer dated 29/07/2022 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel (DRP in short) u/s.144C(5) of the Act dated 29/06/2022 for the A.Y.2018-19.
M/s. TLG India Pvt. Ltd. 2. Though the assessee has raised several grounds of appeal before us, the ld. AR stated that if ground No. 7.9 raised by the assessee is allowed in favour of the assessee, then the adjudication of other grounds would become academic in nature as assessee’s price would be at arm’s length if the working capital adjustment is given to the assessee. Accordingly, we proceed to adjudicate ground No.7-9 raised by the assessee first.
We have heard rival submissions and perused the materials available on record. Sapient Consulting Private Limited ('Sapient') was an Indian Company which was engaged in provision of software development and technology consulting services (in short, SDS). The SDS services provided includes fixing application bugs, compatibility checks, software upgrades and enhanced software, etc. in relation to softwares developed either by Sapient Group, or by third parties. Sapient Consulting Private Limited got amalgamated into the assessee w.e.f 01/04/2019 vide order passed by the Hon’ble National Company Law Tribunal (NCLT) dated 15/05/2020. During the year under consideration, Sapient had entered into several international transactions and specified domestic transactions on which the disputed transaction before us is only in respect of provision of software development and technology consulting services to its Associated Enterprises (AEs). The Sapient had benchmarked the said transaction by taking itself as a tested party and adopted the Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with Operating Profit / Operating Cost (OP/OC) as the Profit Level Indicator (PLI) which was determined at 13.73%. Sapient conducted a search and arrived at a data set of 15 comparable companies, wherein range was arrived at 4.91% to 11.40% (35th and 65th percentile respectively) with median to data set at 7.31% after considering working capital adjustment. This goes to prove that assessee M/s. TLG India Pvt. Ltd. had indeed considered the working capital adjustment for the comparable companies in its Transfer Pricing Study Report (TPSR) itself. The workings for the said working capital adjustment together with the basis of arriving at the same are enclosed in pages 99 to 101 of the paper book, which is the Transfer Pricing Study Report. Since, Sapient’s operating margin was higher than the comparables margin, the transaction was considered to be at arm’s length. The ld. TPO finally arrived at 9 comparable companies and without granting working capital adjustment to the assessee made an adjustment of Rs.99,94,90,368/- to the arm’s length price. The ld. DRP directed for exclusion of 2 out of 9 comparable companies selected by the ld. TPO and upheld the action of the ld. TPO denying working capital adjustment to the assessee. It is not in dispute that the claim of working capital adjustment together with its detailed workings were indeed made and submitted by the assessee before the ld. TPO and also before the ld. DRP. This is evident from pages 210-218 of the paper book representing submissions made before the ld. TPO and pages 319-324 of the paper book representing submissions made before the ld. DRP. The assessee also stated that working capital adjustment had indeed been granted to the assessee either by the ld. TPO or by the ld. DRP, in the earlier years commencing from A.Y. 2011-12 onwards, as the case may be. The ld. AR before us drew our attention to the relevant pages of the paper book where working capital adjustment has been granted to the assessee in the past commencing from A.Yrs.2011-12 to 2017-18. In fact, we also find that on the final set of comparables chosen by the ld. DRP, the assessee had given the working capital adjustments for the said comparable companies which has been ignored by the lower authorities. Hence, we deem it fit to restore the issue to the file of the ld. TPO with a direction to grant working capital adjustment to the assessee after examining the workings given by the assessee thereon. The computation M/s. TLG India Pvt. Ltd. of ALP should be done accordingly. Hence, the ground No.7.9 raised by the assessee is allowed for statistical purposes.
3.1. In view of the decision rendered by us in ground No.7.9 hereinabove, as requested by the ld. AR, the adjudication of other grounds would become academic in nature and no opinion is hereby given thereon and they are left open.
In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 10/01/2023 by way of proper mentioning in the notice board.