Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI. B. R. BASKARAN & SMT. BEENA PILLAI
ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present cross appeals and cross objection has been filed by assessee and revenue against final assessment order dated 22/01/2015 passed by Ld.ACIT Circle-4(1)(2) under section 143(3) read with section 144C(5) of the act for assessment year 2010-11. Ld.AR filed common grounds with reference to appeal and cross objection preferred by assessee which are as under:
1. 1. The LAO and Ld. TPO erred in not considering the second Proviso to section 92C(2) of the Act in relation to (+) / (-) 5% benefit while computing the arm's length price of the company.
2. The Hon'ble DRP and the Learned AO erred in confirming the order of the Learned TPO which has not considered the following companies as functionally not comparable: With respect to software development services: a. (a) ICRA Techno Analytics Limited; (b) KALS Information Systems Limited; (c) Persistent Systems & Solutions Limited. With respect to IT-enabled services: (a) Accentia Technologies b. Limited; (b) ICRA Online Limited.
3. The Hon'ble DRP and the Learned AO erred in confirming the order of the Learned TPO which arbitrarily restricted the working capital adjustment at 1.98% to the software development services and at 0.23% to the IT- enabled services segment.
4. The Hon'ble DRP and Learned AO erred in not allowing the set-off of the brought forward loss pertaining to AY 2009-10 of Rs. 1,58,84,554/- (which was claimed by the Appellant in its income-tax return).
Page 3 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice. Grounds raised by revenue in its appeal are as under: On the facts and in the circumstances of the case the Learned Dispute Resolution Panel erred in directing the AO to exclude the expenditure incurred towards bandwidth expenses and travel expenses from both the total turnover and export turnover for the purpose of computation of deduction u/s 10A of the ACT. 2.The Ld. DRP erred in holding that the size and turnover of the company are deciding factors for treating the company as a comparable and accordingly erred in excluding the comparables.
3. The Ld. DRP erred in excluding uncontrolled comparables having turnover more than Rs.200 crores in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin.
4. The Ld. DRP erred in directed the TPO to compute Risk Adjustment in the case of the taxpayer without adducing any method for the same.
5. The Hon'ble DRP has erred in relying on the decision of Hon'ble High Court of Karnataka in the case of CIT Vs. M/s. Tata Elxsi Ltd, wherein, the legislature intentionally included the definition of Export Turn Over and did not include definition of Total Turn Over for the purpose of computation of deduction u/s 10A. Moreover, the decision of the Hon'ble High Court has not been accepted by the department and further appeal before Hon'ble Supreme Court has been filed, which is pending for decision. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.
Brief facts of the case are as under: 2. Assessee is a company and filed its return of income for year under consideration on 09/10/2010 declaring nil income under normal provisions after setting off brought forward losses. Income of Rs.6,72,87,363/- was declared under MAT provisions and return was processed under section 143(1) of the Act. The case was selected for scrutiny Ld.AO accordingly issued notice under section 142 (1) and 143 (2) of the Act. In response to statutory notices assessee filed details as called for.
Page 4 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 Ld.AO observed that assessee entered into international transaction exceeding Rs.15 crores with its associated enterprises. Accordingly case was referred to transfer pricing officer to determine arm’s length price of such international transactions under section 92CA of the Act.
Upon receipt of reference, Ld.TPO called for economic details of the international transaction in Form 3CEB. From details filed by assessee, Ld.TPO observed that, assessee had following international transactions:
S. No Type of transaction Amount (Rs) 1. Software Development Services 32,04,99,033/- 2. ITES 7,82,60,272/-
Ld.TPO observed that assessee used TNMM as most appropriate method and OP/OC as PLI to determine arm’s length margin of both segments, being software development service segment and IT enabled service segment.
5. Assessee computed its margin at 15% under both segments by using 16 comparables under software development service segment and 15 comparables under IT enabled service segment. On the basis of average margin determined by assessee, transactions were held to be at arms length as it was within +/- 5% range. 6. Ld.TPO applied various filters to the comparables enlisted by assessee in the TP study for both segments and shortlisted a set of 11 comparables with an average margin of 22.71% and set of Page 5 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 10 comparables with an average margin of 26.86%. The details of comparables finally selected by Ld.TPO for both segments are as under: Software Development Service Segment: Sl.No Name PLI ICRA Techno Analytics Ltd.(seg) 1 24.94% Infosys Ltd 2 44.98% 3 Kals Information Systems Ltd.(seg) 34.41% 4 Larsen & Turbo Infotech Ltd 19.33% 5 Mindtree Ltd 14.83% 6 Persistent Systems & solutions Ltd 15.38% 7 Persistent Systems 30.35% 8 R S Software (India) Ltd 10.29% 9 Sasken Communication Technologies 17.36% 10 Tata Elxsi(Seg) 20.93% 11 Thinksoft Global Services 17.05% Average Margin 22.71% IT Enabled service segment:
Sl.No Name PLI 43.06% 1 Accentia technologies ltd 22.27% 2 Acropetal technologies ltd (peg.) 3 E-clerx services ltd 55.97% 22.80% 4 Fortune InfoTech ltd 43.39% 5 ICRA online ltd(se) 26.15% 6 ln1orned technologies India ltd 31.23% 7 Infosys BPO 8 Cosmic global ltd 14.97%
Page 6 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 -12.31% 9 Sundaram business services Ltd 21.05% 10 Jeevan Scientific Technology AVERAGE 26.86 %
Ld.TPO thus proposed adjustment being shortfall in the margin under both segment as under:
Software Development Services 23,101,653 ITES 15,969,215 Total 39,070,868 Ld.TPO restricted working capital adjustment at 1.98% for software development service segment and 0.23% for IT Enabled service segment.
Aggrieved by proposed adjustments and additions made by Ld.AO/TPO, assessee raised objections before DRP. 8.1. DRP after considering submissions raised by assessee, partially accepted exclusion of certain comparables for not fulfilling turnover criteria. DRP directed Ld.AO/TPO to recompute relief under section 10A in compliance with ratio laid down by Horn’ble Karnataka High Court in case of CIT vs M/s.Tata Elxi Ltd reported in 349 ITR 98. As regards the working capital adjustment, objection raised by assessee was rejected whereas DRP suo moto directed Ld.AO/TPO to grant risk adjustment at 1% to the average margin of comparables.
On receipt of directions from DRP, Ld.AO passed final assessment order by reducing transfer pricing adjustment to Page 7 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 Rs.1,80,55,479/- and allowed 10A deduction as claimed by assessee.
Ld.AO while passing final assessment order disallowed bandwidth expenses and travel expenses in foreign currency from export turnover for purposes of computing deduction under section 10 A of the act thereby reducing the deduction eligible to assessee at Rs.5,59,89,229/- as against Rs.5,72,71 573/-.
Aggrieved by final assessment order, both assessee and revenue are in appeal before us now. Revenue’s Appeal: 12. In appeal filed by revenue, challenge is against exclusion of certain comparables not fulfilling turnover criteria prescribed in Rule 10 B of the Income tax Rules, 1962. 11.1. Revenue is also aggrieved by direction of DRP to grant ad hoc 1% risk adjustment without any basis. 11.2. It is also been submitted that decision of Hon’ble Karnataka High Court in case of CIT vs M/s.Tata Elxsi Ltd (supra) has not been accepted by Department and further appeal is pending before Hon’ble Supreme Court, revenue is aggrieved by deduction granted to assessee under section 10A of the Act.
Ground No.2-3 Ld.CIT DR argued that revenue seeks exclusion of Infosys Ltd., Larson & Tubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Technologies Ltd., Infosys Ltd., and TATA Elxsi Ltd. by applying turnover filter. 12.1. Ld.CIT.DR submitted that when companies functionally similar to assessee, and is potentially comparable, the same
Page 8 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 cannot be excluded merely because of high or low turnover. Ld.CIT DR placed reliance upon decision of Hon’ble Delhi High Court in case of Chriscapital Investment Advisers (India) Pvt. Ltd vs DCIT reported in 56 Taxmann.com 417 (2015). 12.2. Ld.AR submitted that authorities below applied lower limit of turnover filter of Rs.1 crore and ignored applying an upper turnover filter. It was submitted that, consistently revenue always took stand that turnover is not a relevant filter in software industry. It has been contended by revenue that in software industry size has no influence on the margins earned by a comparable company. What matters is a human capital. It was under these circumstances that Ld.TPO applied only lower limit of turnover filter for excluding companies having turnover less than Rs.1 crore. 12.3. We have perused submissions advanced by both sides in light of records placed before us. We note that Ld.AO/TPO has applied filter of more than Rs.1 crore but did not put an upper limit to the filter. This Tribunal in case of Genesis Integrating Systems India Pvt Ltd vs DCIT reported in (2012) 53 SOT 159 and various other decisions have held that, companies having turnover in excess of 200 crores cannot be compared with companies having turnover less than Rs.200 crore. This preposition has been accepted by Hon’ble Bombay High Court in case of CIT vs Pentair Water Pvt.Ltd., by order dated 16/09/2015 in ITA No. 18/2015. Hon’ble court upheld rejection of companies having turnover holding that Page 9 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 turnover is a relevant factor in considering comparability of companies. 12.3.1. The objection raised by Ld.CIT.DR by placing reliance upon decision of Hon’ble Delhi High Court in case of Chris Capital (supra) has been dealt with by this Tribunal in case of Autodesk India Pvt.Ltd. vs DCIT in (2018) 96 taxmann.com 263 for assessment year 2005-06. This Tribunal reviewed gamut of case laws to consider, whether companies having turnover more than Rs.200 crores should be regarded as comparable with a company having turnover less than Rs.200 crore. This Tribunal held as under: 17.7 We have considered the rival submissions. The substantial question of law (Question No.1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non- jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of Pentair Water India (P.) Ltd. (supra) has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8 In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating Systems (I) (P.)
Page 10 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 Ltd. (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating Systems (I) (P.) Ltd. (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra). Based upon above discussions we are of opinion that objection raised by revenue cannot withstand the test of law. Accordingly, we do not find any infirmity in excluding Infosys Ltd., Larson & Tubro Infotech Ltd., Mindtree Ltd., Persistent Systems Ltd., Sasken Technologies Ltd., Infosys Ltd., and TATA Elxsi Ltd., for having high turnover as compared to a captive service provider like assessee.
Ground no.4 Ld.CIT DR submitted that DRP provided risk adjustment at 1% on ad hoc basis without having a scientific approach. He submitted that there are various factors that needs to be Page 11 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 considered for providing risk adjustment which assessee has to establish in its case having regards to comparables finally selected. 13.1. We have perused submissions advanced by both sides in light of records placed before us. We have perused orders passed by authorities below on the basis of records placed before us. It is noted that risk adjustment has been provided at risk adjustment on ad hoc basis at 1%. Ld.CIT DR submitted that there is no scientific manner which has been applied by DRP. Assessee is a low risk bearing company for SWD and ITES segment. Therefore while computing risk adjustment, risk assumed by comparables for earning revenue under particular segment needs to be analysed. Assessee is directed to provide for necessary details in respect of all comparables finally selected. If that information is insufficient, and it is beyond the power of Assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find and get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital/risk differences. Ld.AO/TPO shall then compute risk as adjustment in accordance with law. Accordingly, Ground No.4 of revenue’s appeal stands allowed for statistical purposes.
Page 12 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 14. Ground No.5 This ground is in respect of excluding band width expense and travel expense incurred in foreign currency from export turnover while computing deduction under section 10A of the Act. 14.1. Ld.AR submitted that, consistently this Tribunal following decision of Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT reported in 349 ITR 98 has been granting deduction. 14.2. Ld.CIT.DR placed reliance upon orders passed by authorities below. 14.3. We have perused submissions advanced by both sides in light of records placed before us. It is observed that DRP while considering the issue referred to view of Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra), directed Ld.AO to follow the view taken therein, while computing deduction under section 10 A of the Act. 14.3.1. We do not find any infirmity in such directions. Ld.AO to recompute export turnover in the light of ratio laid down by Hon’ble Karnataka High Court in case of Tata Elxsi Ltd vs CIT (supra). Accordingly this ground raised by revenue stands dismissed. In the result appeal filed by revenue stands dismissed. Assessee’s appeal along with Cross objection
15. Ground No.1 raised by assessee is a catalyst and therefore do not require adjudication.
16. Ground No.2 raised by assessee in regarding alleged comparables included by Ld.TPO under SWD Segment and ITES, which are as under:
Page 13 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 A. SWD Segment: Seeks exclusion of KALS Information Systems Ltd., ICRA Techno Analytics Ltd., Persistant Systems & Solutions Ltd. B. ITES Segment: Accentia Technologies Ltd., ICRA Online Ltd. Before we undertake comparability analysis, it is sine qua non to understand functions performed, assets owned and risks assumed by assessee under both these segments. As per TP documentation assessee is engaged in the business of providing IT and ITES services to Marlabs US. It has been recorded that assessee at the request of Marlabs US in accordance with performance standards and rules as specified by Marlabs US provides services to Marlabs US. Ld.TPO has analysed functions performed by is assessee under both segments as under: “As per the Service Agreement: “Exhibit A: Services description of services: provider shall, at customers request and in accordance with such performance standards and rules as customer makes available to provide from time to time provide services to customers. These services include but are not limited to providing support services for the customers staffing business, software development or support for software development, various business process supports, accounting and related services, etc,...... as per the TP document: Marlabs India is engaged in the business of providing IT and ITES services to Marlabs US. Marlabs India shall, at the request of Marlabs US and in accordance with such performance standards and rules as Marlabs US makes available to Marlabs India from time to time, provide services to Marlabs U.S.
Page 14 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 The services include providing software development or support for software development services and process outsourcing services as follows: • Support services for mad labs U.S. staffing businesses: • legal support services: • accounting support services: • HR support services: • IT support services: • corporate marketing services: and • sales support services Software Development Services: • requirements gathering/knowledge transfer face • design face • low-level design • coding • quality assurance/testing • implementation support Other Services-IT enabled services • professional services • legal support services • accounting support services • HR support services • corporate marketing services • sales support services • IT support services Characterisation: Based on above FAR analysis assessee has been characterised as captive service provider. It has been submitted that assessee is compensated with cost plus markup 15% excluding forex variation component as given in the agreement with the AE for provision of services both under software development and IT enabled services. Assessee has therefore excluded forex loss as non-operating in nature. SWD Segment: a) Persistent Systems and Solutions Ltd Page 15 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 This comparable has been included by Ld.TPO though it has been objected by assessee on functional dissimilarities. Ld.AR submitted that segmental information is in respect of this company is not available in annual report. Ld. CIT DR placed reliance upon the orders of authorities below. We have perused submissions advanced by both sides in light of the records placed before us. Annual report of this company is placed at page 1011 to 1022 of paper book index to annual reports volume 1. We find that this company earned income from sale of software services and products and no segmental details are available in respect of the same. It is also observed that income generated under both these segments cumulatively amounts to tune of Rs.6.67 crores and in schedule 11, entire revenue has been shown under one segment. It is also observed that this company is rendering software development services and licensing, and earns royalty of software products. Therefore in our considered opinion, in the absence of segmental details we cannot appreciate the view taken by authorities below. Accordingly we direct Ld.TPO to exclude this company from the final list. b) ICRA techno analytics Ltd: Ld.AR submitted that this company is functionally not comparable as the service segment comprises of software development, software consultancy, engineering services, web development, web hosting etc for which no segmental information is available.
Page 16 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 Ld.CIT DR placed reliance upon the orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. It is observed that this company is engaged in diverse is filed activities of software development and therefore cannot be regarded as functionally comparable with assessee that is rendering captive services to its associated enterprises. We therefore do not find this company to be functionally comparable with assessee. Accordingly this comparable is directed to be excluded from final list. c) KALS Information Systems Ltd: Ld.AR submitted that assessee had objected for inclusion of this comparable as it develops and sales software products. In support of assessee had relied upon decision of this Tribunal in case of DCIT vs M/s.Electronics for Imaging India Pvt.Ltd in ITA (TP) A No. 212/Bang/2015 by order dated 24/02/2016. Ld. TPO however rejected assessee’s submission on the ground that assessee has not substantiated sale of products by this company during the year and it is not clear from where assessee has picked up the sale of products by this company since nowhere in the annual report, it is mentioned that products are being sold. Ld.AR however submitted that this company has inventories of Rs.60,47,977/- that is reflected in the balance sheet for year under consideration and therefore observations of Ld.TPO is not correct.
Page 17 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 On the contrary Ld. DR placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. It is noted that DRP has not verified these issues, though they have been raised by assessee in objection No.
We are therefore setting aside this back to DRP for proper verification. DRP is directed to verify the objections raised by assessee in respect of this comparable and to pass a detailed order. Accordingly this comparable is sent back to DRP. ITES segment Comparables sought for exclusion a) Accentia technologies Ltd Assessee had objected for inclusion of this company before authorities below. Ld.AR submitted that this company is engaged in services are akin to knowledge process outsourcing which is evident from the annual report. It has been submitted that under this segment assessee is rendering back-office services which is merely supportive in nature. He also submitted that further this company does only medical transcription but has also ventured into healthcare receivable cycle management and high end consultancy to start-ups requiring field experts. Ld.AR submitted that segmental details of various activities carried out by this company is not available and also has significant intangibles. In support of his contentions he placed reliance on decision of coordinate bench of this Tribunal in case of Swiss Re Shared Page 18 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 services (India) Pvt.Ltd vs ACIT reported in (2016) 76 Taxmann.com 22. On the contrary, Ld. CIT DR placed reliance upon the orders of authorities below. We have perused submissions advanced by both sides in light of records placed before us it is observed that though this company was into medical transcription and other services it can neither be held to be a very high-end activities nor can be held to be low- end services. However it is observed that this company had undergone acquisition which is an extraordinary event and can impact the profits for the year under consideration. Under such circumstances we are of the opinion that this company cannot be considered to be comparable with that of assessee for the year under consideration. Accordingly direct this company to be deleted from the finalist. b) ICRA Online Ltd Assessee objected for inclusion of this comparable. Ld.AR submitted that this company is functionally not comparable under this segment as is then in high-end KPO services whereas assessee is carrying out back office services. He also submitted that this company fails RPT filter applied by Ld.TPO. On the contrary Ld. CIT DR placed reliance on view taken by this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra). We have perused submissions advanced by both sides in light of records placed before us.
Page 19 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 The annual report of this company is placed at page 1738-1760 of index to annual reports paper book volume 2. It is observed that this company has 3 reportable segments being information services, outsourced services, software services. Further it is observed that, this Tribunal in case of Swiss Re Shared services (India) Pvt.Ltd vs ACIT (supra) and M/s Zyme Solutions Pvt.Ltd vs ACIT in ITA (TP) A No. 85/B/2016 for assessment year 2011-12 remanded this company for fresh consideration to Ld. AO/TPO. Following the same decisions we also direct this company to be set-aside to Ld.AO/TPO for fresh consideration of comparability the lines indicated in these cases. Accordingly this comparable stand set aside for fresh consideration. Accordingly we allow Ground No. 2 raised by assessee in its appeal and cross objection as indicated hereinabove.
Ground No. 3 is against working capital adjustment computed by Ld.AO/TPO at 1.98% for software development service segment and 0.23% for IT enabled service segment. 17.1. Ld.AR submitted that working capital adjustment computed by authorities below are unreasonable. It has been submitted that DRP had directed Ld.AO to grant working capital adjustment which was not followed while passing final assessment order. Ld.AR emphasised that in the present facts of the case assessee does not have any impact of working capital on its own and therefore it is necessary that adjustment has to be provided in case of comparables in order to reduce the differences.
Page 20 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11 17.2. Ld.CIT.DR submitted that the issue may be set aside to Ld.AO/TPO for reconsideration. 17.3. We have perused submissions advanced by both sides in light of records placed before us. On perusal of order passed by Ld.AO is observed that the working capital adjustment has been denied since assessee did not filed requisite details in respect of comparables. As held by various decisions of coordinate benches of this Tribunal, we direct Ld.TPO to recompute working capital adjustment in actual, and to consider the same for purposes of computing arm’s length margin as per the view expressed by this Tribunal in case of Huawei Technologies India Pvt. Ltd vs JCIT reported in (2019) 101 taxman.com 313. 17.3.1. Assessee is directed to provide for necessary details in respect of all the comparables finally selected. If that information is insufficient, it is beyond the power of Assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s.133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defence to say that Assessee has not furnished required details to deny any adjustment on account of working capital. Ld.AO/TPO shall then compute working capital adjustment in accordance with law. Accordingly, Ground No.3 of assessee’s appeal stands allowed for statistical purposes.
Page 21 of 23 IT(TP)A Nos.430, 544/Bang/2015 CO No.160/Bang/2015 A. Y : 2010 – 11
Ground no.4 Ld.AR submitted that assessee had set off, carry forward losses pertaining to AY 2009-10 amounting to Rs.1,58,84,554/-. On verification of assessment records for AY. 2009-10, Ld.AO noticed that loss derived by assessee was reduced and hand income was determined amounting to Rs.1,15,84,554/-. Ld.AR submitted that the same has been offered to tax for assessment year 2009- 10. Both sides submitted for verification of the issue by Ld. AO/TPO. We have perused submissions advanced by both sides in light of records placed before us. It is noted that the submissions advanced by assessee requires verification and if found to the claim shall be allowed in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes. In the result appeal filed by assessee stands allowed as indicated hereinabove. Order pronounced in the open court on 13th May, 2020.