M/S.MARLABS SOFTWARE PVT. LTD.,,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE

PER BEENA PILLAI, JUDICIAL MEMBER

Page 2 of 22 IT(TP)A No.2029/Bang/2016

GROUNDS OF APPEAL

1. On the facts and in the circumstances of the case the order passed by the LAO based on the directions issued by the Hon'ble DRP is bad in law, to the extent the same are prejudicial to the Appellant.

2. The LAO, based on the directions of Hon'ble DRP, erred in confirming the order of Learned TPO rejecting the transfer pricing documentation maintained by the appellant: a. The Company has used prior year data pertaining to the FY 2009-10 and FY 2010-11 besides the current FY 2011-12 wherever available but no reasons are given as to how the earlier year data has influenced the price charged by either the taxpayer or that of the comparable so as to attract the proviso to Rule 1013(4). b. The Company has computed the three-year average of the data for the last three years. c. The Company has not applied employee cost > 25% filter. d. The Company has not applied export revenue to sales filter in its search process.

3. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO in rejecting the following comparable companies identified by the Appellant:

4. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which involved adoption of the following inappropriate filters for selection of comparable companies thereby making the arm's length price determined by the Ld. TPO incorrect in law and in fact. a. Exclusion of companies which did not have financial information for FY 2011-12; b. Exclusion of companies with employee cost less than 25% of turnover; C. Exclusion of companies having different FY ending; or whose data of company does not fall within 12-months.

5. The Hon'ble DRP and the LAO erred in confirming the order of the Learned TPO which involved had selected the following comparable companies that are functionally different from the Appellant: a. Universal Print Systems Ltd. b. TCS e-Serve Ltd. C. BNR Udyog Ltd. d. Excel Infoways Ltd. e. Infosys BPO Ltd.

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Brief facts of the case are as under: 2. Assessee is into the business of software development and IT Enabled Services. 2.1 It filed its return of income for year under consideration on 30/11/2012 declaring total income of Rs.8,31,01,610/-. The same was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny. Notice under section 143(2) was issued to assessee along with notice under section 142(1) of the Act. In response to statutory notices, representative of assessee appeared before the Ld.AO and filed requisite details as called for. 2.2 The Ld.AO observed that, assessee had international transaction exceeding Rs.5 crores and accordingly the case was referred to Transfer Pricing officer to determined the arm’s length

Page 4 of 22 IT(TP)A No.2029/Bang/2016 price of the international transactions entered into by assessee with its associated enterprises. 2.3 On receipt of reference under section 92CA of the act, the Ld.TPO called upon assessee to file economic details of the international transactions entered into by assessee with its associated enterprises in Form 3CEB. The assessee filed relevant information based on which, the Ld.TPO observed functions performed by assessee as under: 2. FUNCTIONAL ANALYSIS OF THE TAX PAYER: Marlabs India is engaged in the provision of software development services and IT enabled services to Marlaos Inc. A brief summary of the services rendered under business segments is as follows: IT & ITeS services: Marlabs India is mainly engaged in the development of custom software applications (software development) It also renders E3PO services hat mainly related to legal accounting and human resource services Marlabs India is compensated on a cost plus basis for the software development services and IT enabled services provided to Mat-labs Inc. IT consulting services: The IT consulting services are services relating mainly to providing of staff augmentation to IT companies. Marlabs India provides IT consulting services to unrelated third party customers in India 2.1. As per TIP document Marlabs Inc provides innovative software services and BPO services that improve the operational efficiency and helps its customers to gain competitive advantage It caters to the banking and financial services, healthcare, insurance, life sciences airline services, energy and utilities, media, state and local government and legal sector. Services: Application Development and Maintenance: Information Security Management Practice: Mobile Applications Business Intelligence ("B!') and Data Warehousing: (Analysis, Design, Implementation) Independent Verification and validation: Business Process Outsourcing Enterprise Resource Planning (ERP"): Infrastructure Services Consulting Services Oracle Hyperion.

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• Development and Implementation Services • Migration and Upgrade services • Maintenance and support services • Testing services 2.4 The Ld.TPO observed that assessee had following international transactions with its associated enterprise:

2.5 From the TP documentation the Ld. TPO observed that assessee computed its margin by using OP/OC at 17.23% and 17.3% by using TNMM as most appropriate method for software development service segment and ITES segment respectively. It was observed that assessee used 25 comparables for software development service segment having average margin of 9.06% and 11 comparables for I T enabled service segment having average margin of 12.55%. 2.6 Dissatisfied with the TP documentation, the Ld.TPO rejected the comparables selected by assessee and the filters used. The Ld.TPO thus applied fresh filters and search based upon which following comparables were finalised under ITES segment: ---- space left intentionally ---

Page 6 of 22 IT(TP)A No.2029/Bang/2016 2.7 The Ld.TPO rejected the risk adjustment, however granted working capital adjustment. The Ld.TPO observed that under software development service segment the shortfall was computed to be within 5% of the international transaction and therefore no adjustment was proposed. However as regards IT Enabled service segment following shortfall was proposed to be the adjustment under section 92CA of the Act:

Page 7 of 22 IT(TP)A No.2029/Bang/2016 2.8 On receipt of the Transfer Pricing order, the Ld.AO passed draft assessment order by making an addition computed by the Ld.TPO towards Transfer Pricing adjustment. 2.9 Aggrieved by the draft assessment order, the Ld. assessee preferred objections before the DRP. The DRP upheld the comparables selected by the Ld.TPO however considered the objections of assessee in relation to foreign exchange loss to be operating income for computing the margins. 2.10 On receipt of the draft assessment order, the Ld.AO passed the final assessment order by making addition in the hands of assessee at Rs.71,78,720/-. 2.11 Aggrieved by the order passed by the Ld. AO, assessee is in appeal before us now.

3. At the outset, the Ld.AR submitted that assessee do not wish to press Ground Nos. 1-4. Accordingly these grounds are dismissed as not pressed.

Page 8 of 22 IT(TP)A No.2029/Bang/2016 Before we undertake the comparability analysis, it is sine qua non to understand functions performed, assets owned and risks assumed by assessee under ITes segment. Functions: 4.3 Marlabs has entered into a Service agreement with Marlabs Inc to provide IT enabled services. This agreement is effective from 10 March 2010. Some of the salient features of the Agreement are: • The service provided by Marlabs India to Marlabs Inc includes provision of support services for the customers, staffing business and various business processes support services, 3ounting and related services etc. • Marlabs India will be remunerated on a cost plus 15 percent mark up basis. Costs would i-dude all direct costs and indirect costs which can be directly identified with a project. Non operating expenses like foreign exchange gain (loss), cost of capital improvements are specifically excluded from the costs eligible for computing mark up. • Invoices are raised on a monthly basis and payment is within 30 days of the receipt of the invoice. All service fees is payable in US dollars by Marlabs Inc. • Marlabs Inc would retain title, copyright and all other proprietary information along with the ownership of intellectual property. Marlabs India would not own any intellectual property. Assets Owned :

Page 9 of 22 IT(TP)A No.2029/Bang/2016 4.4 Assessee owns tangible assets like computer, office equipment, furniture & fixtures etc. For day today working. Risks assumed : 4.5 Marlabs India operates under a risk mitigated environment. Marlabs India does not carry out significant entrepreneurial activities nor does it bear significant risks associated with such activities. Characterisation : 4.6 Marlabs India may be characterised as a risk mitigated contract service provider for provision of software development services and IT enabled services. 4.7 We note that under identical circumstances coordinate bench of this Tribunal by order dated 20/09/2019 in case of VWR Labs Products Pvt. Ltd. vs ACIT reported in [2020] 116 taxmann.com 244 observed and held as under: 7. (a) UniversalPrintSystems Ltd (segmental) (BPO) Assessee sought to exclude this comparable for the reason that, it fails employee cost filter and has insufficient company information. It is also been submitted that, functionally this company is providing integrated print solution to its customers and does not provides routine ITEs services like that of assessee. It has been submitted that this company is not a captive service provider like that of assessee and has products sale as well as services sale, which is evident from page 1360 of paper book volume 1 (Index for Annual Reports). Ld.CIT DR placed reliance upon orders of authorities below and submitted that this comparable is functionally comparable with that of assessee. We have heard submissions advanced by both sides in light of record placed before us. On perusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written

Page 10 of 22 IT(TP)A No.2029/Bang/2016 submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions (P.) Ltd. v. ACIT [2019] 101 taxmann.com 292 (Bang. - Trib.), wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of universalPrintSystems Ltd. with that of the assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had not been countenanced by learned AR of the assessee. However, the issue of comparability of UniversalPrintSystems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Consultants Pvt. Ltd. (supra) wherein it was held as follows: "47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is UniversalPrintSystems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.6% of the total revenue from operations of this company as per its annual report. The .Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbour rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule IOTA(e) of the Rules. Since use of information technology is absent .in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the Page 11 of 22 IT(TP)A No.2029/Bang/2016 employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue.

Page 12 of 22 IT(TP)A No.2029/Bang/2016 "10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: — (a) to (d)** (e ) transactional-margin method, by which (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (if) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii) (v) the net profit margin thus established is then taken into account an arm's length price in relation to the international transaction.

2. For the purposes of sub-rule (1), the comparability of an (a) the specific characteristics of the property transferred or services provide: either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (c) the specific characteristics of the property transferred or services provide: either transaction (d) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions (e) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or Implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions:

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(d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and. capital in the markets, overall economic development and level of competition and whether the markets are wholesale retail (3) An uncontrolled transaction shall be comparable to an internatiorial (i) none of the differences, if any, between the transactions being compared or between the enterprises entering into such transactions are likely materially affect the price or cost charged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 5.2 There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing, Offset Printing and Pre-press BPO. Whether the label printing and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press BPO have to be adjusted taking into account the fact that two other segments supplement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s. 133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised the Assessee in Page 14 of 22 IT(TP)A No.2029/Bang/2016 this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld.AO/TPO, for fresh adjudication, on the basis of directions reproduced hereinabove. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld.TPO. 8. (b) Infosys BPO Ltd. Assessee objected for inclusion of this comparable primarily on the basis of functional incompatibility and presence of intangibles. It has been submitted that this company owns huge brand and not a fit comparables for company like assessee, who provide captive service to its AE's. Ld. CIT DR opposed the exclusion and placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions (P.) Ltd. v. Asstt. CIT [2019] 108 taxmann.com 495 (Bang. - Trib.), wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. v. ACIT for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:— "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly 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..

Page 15 of 22 IT(TP)A No.2029/Bang/2016 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 companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin."

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♦ Zyme Solutions (P.) Ltd. (supra) ♦ Baxter India (P.) Ltd v. ACIT [2017] 85 taxmann.com 285 (Delhi - Trib) ♦ Pr. CIT v. BC Management Services (P.) Ltd. [2018] 89 taxmann.com 68/(Delhi) It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions (P.) Ltd. (supra), by observing as under: "11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co- ordinate bench of Tribunal 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 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 t) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for I' - reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. Shall equally hold good and therefore we direct the AO/TPO to exclude this company from list of comparables Since the appellant company is into l ow end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable".

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It has been observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. Respectfully following aforesaid decision, we direct Ld.TPO to exclude this company from the list of comparables. 10. (d) BNR Udyog Ltd. (segmental) Ld.AR submitted that this company fails RPT filter and also fails export filter applied by Ld.TPO. It is submitted that this company is into medical transcription, coding, business support services and e-governance projects and therefore functionally not similar with that of assessee. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P) Ltd. v. Dy. CIT [2018] 97 taxman.com 2 (Bang. - Trib.) in support. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. It is observed from annual report placed at page 745 of paper book Volume (Index to Annual Reports) that this company has segmental information of medical transcription and revenue earned under this segment is Rs.147.40 Lacs. It is also been observed that various other decisions by co-ordinate Benches of this tribunal has remanded this comparable back to Ld.TPO, for proper analysis and fresh consideration. We draw support for same from Indegene (P.) Ltd. v. Asstt. CIT [2017] 85 taxmann.com 60 (Bang. - Trib.), wherein it has been held as under: "9.3.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company M/s TCS E-serve Ltd are high end

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KPO services, it has not brought out as to which of these are the services that would come under technical services. On the other hand, w also notice that that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate Bench o ITAT Bangalore in the case of Indegene (P) Ltd., (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the co-ordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file of the TPO for fresh consideration in the light of out above observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. It is also been observed that similar view has been taken by decision of this Tribunal in case of Nielson Sports India (P.) Ltd. v. ACIT [IT(TP) Appeal No.196(Bang.) of 2017, dated 28-06-2019]. Respectfully following the same, we set aside this comparable back to Ld.TPO for considering it afresh. Needless to say that proper opportunity shall be granted to assessee as per law. 4.4 Nothing has been placed before us by the Ld. CIT DR contrary to the above observations by coordinate bench of this tribunal. Respectfully following the same we direct exclusion of Universal print, TCS e-serve and Infosys BPO from the list of comparables and remand BNR Udyog Ld. AO/TPO to consider it afresh in light of the observations made by coordinate bench of this tribunal reproduced hereinabove.

In the result this ground raised by assessee stands partly allowed. 4.8 The Ld.AR submitted that DRP directions to consider foreign exchange as operating income while computing working capital adjustment may be directed to Ld.AO/TPO.

Page 19 of 22 IT(TP)A No.2029/Bang/2016 4.9 We accordingly direct the Ld.AO/TPO to consider foreign exchange to be an operating income while computing working capital adjustment as per the directions of DRP. 4.10 No other grounds raised in the revised ground of appeal has been argued by the Ld. A.R. at the behest of assessee and accordingly the same is dismissed as not pressed. In the result appeal filed by assessee stands partly allowed.

5. Ground No.3(g): The grievance of the assessee is with regard to negative working capital adjustment carried out by the Ld.TPO which was confirmed by the DRP. It is the plea of the assessee that though the Ld.TPO has observed that the Assessee has a healthy margin, the Ld.TPO has erred in making an adjustment towards working capital and the DRP further erred in upholding the same. 5.1 It was submitted that Working capital adjustment is made for the time value of money lost when credit time is given to the customers. The Assessee however does not bear any risk and has no working capital contingencies. The Assessee has not incurred any expenses for meeting the working apital requirement. The Assessee is running the business without any working capital risk as compared to the comparables. The Assessee does not bear any market risk as the services are provided only to its AE. Therefore, requirement for adjustment of negative working capital does not arise. 5.2 The Ld. AR placed reliance on decision of coordinate bench of this Tribunal in case of Tavant Technologies India (P.)

Page 20 of 22 IT(TP)A No.2029/Bang/2016 Ltd. v. Dy. CIT [2020] 120 taxmann.com 122/185 ITD 309 (Bang - Trib) and Lam Research India (P.) Ltd. v. Dy. CIT [IT Appeal Nos. 1473 & 1385 (Bang.) of 2014, dated 30-4-2015], Tivo Tech (P.) Ltd. v. Dy. CIT [2020] 117 taxmann.com 259/185 ITD 209 (Bang - Trib) and Dy. CIT v. Software AG Bangalore Technologies (P.) Ltd. [IT Appeal No. 1628 of 2014, dated 31-3-2016], where it has been held that negative working capital adjustment shall not be made. 5.3 We have considered the rival submissions. We find that in the case of Lam Research India (P.) Ltd. (supra) and Software AG Bangalore Technologies (P.) Ltd. (supra) passed by this Tribunal, it has been held that negative working capital adjustment shall not be made in case of a captive service provider as there is no risk and it is compensated on a total cost plus basis. We therefore direct Ld.TPO to compute the ALP in accordance with the directions contained in this order after affording assessee opportunity of being heard. Accordingly Ground No.3(g) raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands partly allowed. Order pronounced in the open court on 17th Sept, 2021