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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI JASON P BOAZ & SHRI PAVAN KUMAR GADALE
O R D E R
Per Jason P Boaz, Accountant Member:
This appeal by the assessee is directed against the final order of assessment passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 18.09.2018; pursuant to the directions issued by the Dispute Resolution Panel – 2, Bangalore (DRP) under section 144C(5) of the Act on 31.08.2018. The relevant Assessment Year is 2014-15.
IT(TP)A No.3068/Bang/2018 Page 2 of 27
Briefly stated, the facts of the case are as under:-
2.1 The assessee is a company engaged in providing Information Technology Enabled Services (ITES) to its Associated Enterprises (AEs) such as pay roll processing, cashiering, document imaging, loan accounting, Investor reporting and Internet based customer services. In the year under consideration, the assessee has classified its international transactions as ITES and had conducted its comparability analysis by applying TNMM as the most appropriate method (MAM).
2.2 For Assessment Year 2014-15, the assessee filed its return of income on 30.11.2014 declaring an income of Rs.53,30,22,220/-. The case was selected for scrutiny for this Assessment Year. A reference under section 92CA of the Act was made by the Assessing Officer (AO) to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions entered into by the assessee with its AEs in this year. The TPO passed an order under section 92CA of the Act dated 30.10.2017 proposing a transfer pricing (TP) adjustment of Rs.15,11,87,300/- in respect of the ITES rendered by the assessee to its AEs. After receipt of the TPO’s order, the AO passed a draft order of assessment under section 143(3) r.w.s. 92CA of the Act dated 22.12.2017, wherein the assessee’s income was determined at Rs.68,64,27,760/- in view of, inter alia, the aforesaid TP adjustment of Rs.15,11,87,300/- proposed by the TPO.
2.3 Aggrieved by the draft order of assessment dated 22.12.2017 for Assessment Year 2014-15, the assessee filed its objections thereto before the DRP which issued its directions under section 144C(5) of the Act on 31.08.2018. Pursuant thereto, the AO concluded the final order of assessment under section 143(3) r.w.s. 144C(13) of the Act vide order dated 18.09.2018 wherein the IT(TP)A No.3068/Bang/2018 Page 3 of 27 assessee’s income was determined at Rs.68,64,27,760/- and included the TP adjustment of Rs.15,11,87,300/-.
The assessee, being aggrieved by the final order of assessment dated 18.09.2018 for Assessment Year 2014-15, has filed this appeal before the Tribunal, wherein it has raised the following grounds:-
IT(TP)A No.3068/Bang/2018 Page 4 of 27
IT(TP)A No.3068/Bang/2018 Page 5 of 27 TRANSFER PRICING ISSUES 4.1 As briefly outlined earlier, the assessee had classified the international transactions with its AEs in the year under consideration as ITES. The assessee carried out its comparability analysis by applying TNMM as the MAM with operating cost to total cost (OP/TC) as the profit level indication (PLI) and selected the following set of nine comparable companies:
As the assessee’s margin at 17.67% was higher than that of the comparable companies at 8.02%, the assessee considered international transactions with the AEs to be at arms length.
IT(TP)A No.3068/Bang/2018 Page 6 of 27 4.2 The TPO rejected the assessee’s TP study for the reasons mentioned in his order under section 92CA of the Act; suo moto carried out a fresh comparability analysis by adopting certain filters and using the current year data only and selected the following five companies.
OP/OC Sl. No. Company Name (in %) 1. Infosys Systems Ltd., 27.43 2. Microgenetic Systems Ltd., 18.06 3. Microland Ltd., 20.07 4. BNR Udyog Ltd., 25.08 5. Cross domain Solutions Pvt. 21.07 Ltd., Average 22.34% 4.3 In view of the above, the TPO computed the TP adjustment to the transactions in the ITES segment of the assessee company as under:-
4.4 The above TP adjustment proposed by the TPO was incorporated in the draft order of assessment for Assessment Year 2014-15 dated 22.12.2017. The assessee filed its objections thereto before the DRP who issued its directions under section 144C(5) of the Act on 31.08.2018. Pursuant thereto the AO passed the final order of assessment dated 18.09.2018 for Assessment Year 2014-15 against which the assessee is in appeal before the Tribunal.
IT(TP)A No.3068/Bang/2018 Page 7 of 27 4.5 In the course of proceedings before us, the learned AR for the assessee put forth both oral and written arguments / submissions. The learned AR also submitted a chart of comparable companies that it is seeking exclusion from and inclusion in the final set of comparables. The learned DR for Revenue was heard in the matter.
Ground Nos.1 to 9, 13 and 14 5.1 At the outset, the learned AR of the assessee submitted that the assessee is only pressing (i) ground Nos. 10; pertaining to exclusion of certain comparable companies from the list of comparables; (ii) ground No.11 pertaining to the inclusion of certain comparable companies and (iii) ground No.12 in respect of working capital adjustment. It is submitted that all other grounds i.e., ground Nos.1 to 9, 13 and 14 (supra) are not pressed. In these circumstances, ground Nos.1 to 9, 13 and 14 (supra) are rendered infructuous and accordingly dismissed as not pressed.
Ground No.10 – Comparable companies sought to be excluded by the assessee 6.1 In this ground (supra), the learned AR for the assessee seeks exclusion of the following two companies from the TPO’s final set of comparables:- 1) Infosys BPO Ltd., and 2) Microland Ltd., 6.2 The learned AR submitted that the assessee is not pressing for the exclusion of the following two companies from the final list of comparables:- 1) BNR Udyog Ltd., and 2) Cross Domain Solutions Pvt. Ltd.,
IT(TP)A No.3068/Bang/2018 Page 8 of 27
Infosys BPO Ltd., (‘Infosys’)
7.1 This company ‘Infosys’ was selected as a comparable company by the TPO. The assessee objected to its inclusion both before the TPO as well as the DRP, but both the authorities below rejected the assessee’s objections to its inclusion.
7.2.1 Before us, the assessee objected to the inclusion of this company, ‘Infosys’ on the following grounds:-
I Functionally Different
(i) It is engaged in diversified activities and provides services in the area of Analytics, Legal process outsourcing, etc., unlike the assessee in the case on hand which provides low end ITES. (ii) It provides business process management services, consultancy and management services and end-to-end outsourcing, as can be seen from pages 5, 14 and 33 of its Annual Report. (iii) It is engaged in research and development.
II Ownership of intangible assets
This company, Infosys, owns intangible assets worth Rs.19 Crores during the year as can be seen from pages 16, 47 and 58 of its Annual Report; whereas the assessee does not possess any intangible asset.
IT(TP)A No.3068/Bang/2018 Page 9 of 27 III Brand Value
‘Infosys’ has brand value; having incurred Rs. 5 Crores for its brand building and advertisement, as can be seen from pages 24, 29, 47, 58 and 64 of its Annual Report; whereas the assessee does not have any brand.
IV Sub – contracting Infosys operates on a different business model as it has incurred Rs.157 Crores towards cost of technical sub-contractors.
7.2.2 In support of the assessee’s contentions, the learned AR submitted and took us through the relevant pages of the Annual Report of ‘Infosys’. It was submitted that for the reasons given above, it has been consistently held by various benches of the Tribunal over the years that this company cannot be considered as a comparable to companies leading ITES. In this regard, the learned AR placed reliance on the following decisions:-
(i) CGI Information Systems and Management Consultants (P) Ltd., Vs. ACIT in IT(TP)A Nos.586 and 183/Bang/2017 dated 11.04.2018 for Assessment Years 2010-11 and 2012-13.
(ii) Mobility Infotech India Pvt. Ltd., in IT(TP)A No.2055/Bang/2015 for Assessment Year 2012-13.
7.3 Per contra, the learned DR for Revenue supported the orders of the authorities below.
IT(TP)A No.3068/Bang/2018 Page 10 of 27 7.4.1 We have considered the rival contentions / submissions and perused the material on record; including the judicial decisions cited. We find from a perusal of the Annual Report at page 14 thereof, under the head ‘Managements Discussion and Analysis’, it has been stated that this company provides services to both horizontal and vertical focus areas. The Horizontal focus areas are sourcing and procurement (S & P), Customer Services (CS), Finance and Accounting (F & A), Legal Process Outsourcing (LPO), Sales and Fulfillment (S & F), Analytics (AT), Business Platform (BP), Business Transformation Services (BTS), Human Resources Outsourcing (HRO) and Technology Solution Optimization (TSO). The Vertical focus areas of services are Financial Services & Insurance (FSI) Manufacturing (MFG), Energy, Utilities Communication & Services (ECS) and Retail, Consumer Packaged Foods, Logistics & Life Services (RCL). From the above, it is clear that ‘Infosys’ offers a gamut of different and diversified services which cannot be compared with routine back office services provided by the assessee. In fact, it is mentioned at page 14 of the Annual Report that the company ‘Infosys’ provides business process management services which are different from routine back office services. It is also seen that this company enjoys significant brand value and owns intangible assets which clearly establish that Infosys is different from the assessee in the case on hand.
7.4.1 We also further observe that this company, ‘Infosys’ has consistently been rejected as a comparable to companies rendering routine back office services in various judicial pronouncements of the Tribunal; including the two decisions cited by the assessee (supra). In the case of CGI Informaiton Systems and Management Consultants (P) Ltd., (2018) 94 taxmann.com97 (Bangalore – Trib) for Assessment Year 2012-13, cited by the assessee, this company ‘Infosys’ has been excluded from the list of comparables for the reason that it has brand value which had an impact on its pricing and margins. As the IT(TP)A No.3068/Bang/2018 Page 11 of 27 facts of the year under consideration are similar, the decision rendered in the earlier year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys BPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly.
Microland Ltd., (‘Microland’)
8.1 This company ‘Microland’ was selected as a comparable company by the TPO despite the objections to its inclusion in the final list of comparables both before the TPO and DRP.
8.2.1 Before us, the assessee has objected to the inclusion of this company ‘Microland’ on the following grounds:-
(i) that it is functionally different as it provides cloud computing related services; which services relate to private cloud, desk top virtualization, cloud migration, hybrid cloud migration, server management, etc. (ii) It fails the service Income filter of 75% as the ITES Revenues as a percentage of total revenue is 5.68%. (iii) It fails the RPT filter of 25%.
8.2.2 The learned AR submitted this company ‘Microland’ is primarily rendering Infrastructure Management Services and ITES as stated at pages 14 and 80 of the Annual Report of the company. The website extract of ‘Microland’ was submitted to contend that it renders services like Virtualization Cloud Computing, Infrastructure Management and IT modernization services.
IT(TP)A No.3068/Bang/2018 Page 12 of 27 According to the learned AR, these services rendered by ‘Microland’ are high end IT Services that cannot be compared to the functions performed by the assessee, which are routine back-end processing services. It was further submitted that the TPO, in the order for Assessment Year 2015-16, has rejected this company ‘Microland’ as a comparable on the ground that the IT Infrastructure segment of this company is not comparable to the ITES segment of the assessee as the ITES segment is less than 10% of Microland’s total business. The learned AR also submitted that without prejudice to the assessee’s contention that this company, ‘Microland’ is not functionally comparable to the assessee, even if ‘Microland’ has to be considered as a comparable, then only its ITES segment needs to be considered for comparability analysis.
8.3 Per contra, the learned DR for Revenue supported the orders of the authorities below.
8.4.1 We have considered the rival contentions / submissions put forth and perused the material on record. This company, ‘Microland’ was selected as a comparable by the TPO. In his order, the TPO has stated that this company ‘Microland’ is currently organized in business segments, comprising of infrastructure management services and IT Enabled Services (ITES). On the objections raised by the assessee that ‘Microland’ is not functionally comparable, the TPO rejected the same by holding that both its segments are in the nature of ITES only, considered its entire operations as ITES and held the company to be comparable to the assessee at entity level. In respect of the objections raised by the assessee before the DRP, it is seen that the DRP concurred with the TPO’s view that both the segments of ‘Microland’ are in the nature of ITES only and held that its entire operations to be comparable to the assessee at entity level.
IT(TP)A No.3068/Bang/2018 Page 13 of 27 8.4.2 We have perused the Annual Report of the company ‘Microland’, placed at pages 140 to 277 of the paper book. At page 14 of the Annual Report, this company has characterized itself as a service company primarily rendering Infrastructure Management Services. At page 97 of the Annual Report, it is mentioned that the company is organized in business segments comprising of infrastructure services and ITES thereby clearly indicating that the services rendered in both segments are different and distinct from each other. In our view, the TPO / DRP have not brought on record any evidence to support their contention that both the aforesaid segments are rendering ITES only. If that were so, there was no reason whatsoever for the company to show Infrastructure Management Services as different and distinct segment from the ITES.
8.4.3 From an appraisal of the details submitted, it is seen that the services rendered by ‘Microland’ under Infrastructure Management services are Server Management, Database Management, storage management, Archival Management, Network Management, etc., which has been classified as different from the back office processing services rendered by companies like the assessee in the case on hand. In our view, there is no basis for the TPO to contend that the aforesaid services rendered by ‘Microland’ are ITES, when the company itself has classified these services as different from ITES and characterized the same as a different business segment. In these factual circumstances, we are inclined to concur with the contention of the learned AR that the Infrastructure Management services segment of ‘Microland’ is different and distinct with ITES as has been classified by the company in its Annual Report for the year under consideration. We also observe that the TPO himself has reached the same conclusion n the subsequent Assessment Year 2015-16; that the Infrastructure segment services segment is not comparable to ITES.
IT(TP)A No.3068/Bang/2018 Page 14 of 27 8.4.4 At page 97 of the Annual Report of ‘Microland’ for the year under consideration, the segmental details of the two business segments are provided from which it is seen that out of the total revenue of Rs.34,471 lakhs, the revenue from ITES segment is Rs.1959 lakhs; which is 5.68% of the total revenue. As we have concluded that the infrastructure services segment is a different business segment not comparable to ITES rendered; this company, ‘Microland’ fails the filter adopted by the TPO that companies whose service income is less than 75% of total operating revenue are to be excluded. In view of the facts and circumstances of the case, as discussed above, and in view of the above factual findings, we hold that Microland Ltd., should be excluded from the final set of comparables in the case on hand.
Ground No.11 – Companies sought to be included by the assessee in the final set of comparables 9.1 In this ground (supra), the learned AR for the assessee submits that the assessee seeks inclusion of only the following three companies in the final list of comparables:-
Informed Technologies Ltd., 2. Crystal Voxx Ltd., 3. Jindal Intellicom Ltd., 9.2 The learned AR submitted that the assessee is not pressing for the inclusion of the following 4 companies in the final set of comparables:- 1. Allsec Technologies Ltd., 2. Caliber Point Business Solutions Ltd., 3. Ace BPO Services Pvt. Ltd., 4. Sundaram Business Services Ltd.,
IT(TP)A No.3068/Bang/2018 Page 15 of 27
Informed Technologies Ltd., (‘Informed’)
10.1 This company ‘Informed’ was selected by the assessee as a comparable company in its TP study. The TPO in his order rejected this company stating that since ‘Informed’ is being primarily engaged in the business of Business Process Outsourcing, it fails the service income filter. On the objections filed by the assessee, the DRP concurred with the finding of the TPO by observing that the Annual Report shows that the sale of services is Rs.2,58,53,362/- as against the total revenue of Rs.3,81,86,665/- which comes to only 67.7% and therefore fails the service income filter applied by the TPO.
10.2 Before us, the learned AR for the assessee contended that this company ‘Informed’ is functionally comparable to the assessee as it is an ITES provider and qualifies the service income filter of 75% applied by the TPO. It was submitted that the entire service income of ‘Informed’ at Rs.2,58,53,362/- is from rendering of ITES only and the TPO/DRP have wrongly considered “other income” of Rs.1,22,85,303/- as “Service Income”. In support of this contention, the learned AR drew the attention of the Bench to the relevant portion of the Annual Report of ‘Informed’ (placed at pages 391 to 443 of Paper Book). In this regard, reliance was placed on the decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems and Management Consultants (P) Ltd., (2018) 94 taxmann.com 97 (Bang – Trib) wherein this company ‘Informed’ was held to be comparable to companies rendering ITES. It was prayed that, in the light of the above, this company ‘Informed Technologies Ltd.,’ be included in the final set of comparables in the case on hand.
10.3 Per contra, the learned DR for Revenue supported the orders of the authorities below.
IT(TP)A No.3068/Bang/2018 Page 16 of 27 10.4.1 We have considered the rival submissions and carefully perused the material on record. On a perusal of the Annual Report of this company ‘Informed’, it is seen that at page 12 thereof it is stated that this company is engaged in and operating as an ITES provider. A perusal of the TPO’s order also indicates that the TPO has not disputed that this company is functionally comparable to the assessee in the case on hand; which is rendering back office ITES. From a perusal of the profit and loss account at page 30 of the Annual Report of ‘Informed’ it is seen that the total revenue is shown as Rs.3,81,38,665/- and ‘other income’ of Rs.1,22,85,303/-. As can be seen from Schedule 19 on page 40 of the Annual Report, the ‘other income’ comprises of non-operating income, interest, dividend, sale of current investments and miscellaneous income and evidently these incomes cannot be considered as operating income. The percentage of 67.7% worked out by the TPO is after considering these “other income” as service income; which is factually incorrect. It is evident from a perusal of the profit and loss account of ‘Informed’ that the service income is Rs.2,58,53,362/- which is entirely the revenue from operations and therefore in our considered view, the service income filter of 75% of service income to be from ITES as applied by the TPO, is satisfied in this case. In view of this factual finding rendered in the matter, we hold that this company ‘Informed Technologies Ltd.,’ satisfies the service income filter and is therefore to be included in the final set of comparables. We hold and direct the AO/TPO accordingly.
Crystal Voxx Ltd., (‘Crystal’)
11.1 This company, ‘Crystal’ was proposed by the assessee before TPO as an additional comparable to be included in the final set of comparables. The TPO, however, rejected the assessee’s proposal on the ground that this company had not reported any earnings from export of services and therefore it is not IT(TP)A No.3068/Bang/2018 Page 17 of 27 possible to determine as to whether ‘Crystal’ has exports / foreign earnings more than 75% of total sales / turnover. The DRP concurred with the finding of the TPO; observing that while it is stated that “income from foreign currency” is Rs.3,23,08,386/-, it is not clear whether this relates to export of services as this information is not available and therefore this company ‘Crystal’ is rejected.
11.2 Before us, it was contended that this company ‘Crystal’ is functionally comparable to the assessee in the case on hand as it is operating as a BPO Company which is a ITES provider. According to the learned AR, it is very evident from a perusal of the Annual Report of this company ‘Crystal’ that the income in foreign currency amounting to Rs.3,23,08,386/- is out of export of services. In support of this contention, the learned AR took us through the relevant pages of the Annual Report of this company, ‘Crystal’, which is placed at pages 474 to 497 of the paper book.
11.3 Per contra, the learned DR for Revenue supported the orders of the authorities below in not including this company, Crystal Voxx Ltd., in the final set of comparables.
11.4 We have considered the rival contentions / submissions and perused the material on record. We have carefully perused the Annual Report of this company, ‘Crystal’. At Note 3 of the Notes forming part of the accounts, at page 491 of the paper book, it is stated that the operations of the company predominantly relate to a single segment, namely “BPO Activity”. At note 6, the income in foreign currency is shown as Rs.3,23,08,386/-. In the Director’s Report, at page 480 of the paper book, the foreign exchange earnings is given as Rs.3,23,08,386/-. In the factual matrix of the matter, as laid out above, we are of the considered opinion that the reason ascribed by the TPO and DRP for exclusion of this company, ‘Crystal’ is factually incorrect. Taking into
IT(TP)A No.3068/Bang/2018 Page 18 of 27 consideration that the company ‘Crystal’ is otherwise comparable to the assessee in the case on hand as it is operating as a BPO company which is a provider of ITES, we direct that this company, Crystal Voxx Ltd., be included as a comparable company in the final set of comparables in the case on hand. The AO / TPO are accordingly directed.
Jindal Intellicom Ltd., (‘Jindal’)
12.1 This company, ‘Jindal’ was proposed by the assessee before the TPO as an additional comparable for inclusion in the final set of comparables. The TPO, however, rejected the assessee’s proposal on the grounds that this company ‘Jindal’ is engaged in providing services of a call centre in the overseas and domestic market; export of call centre services forming a major part of its business activities it was functionally different from the assessee and further on account of non-availability of segmental data. The DRP concurred with the findings of the TPO; holding that this company, ‘Jindal’, is engaged in both software development services and ITES and therefore it is difficult to treat this company as functionally comparable to the assessee in the case on hand.
12.2 Before us, it was submitted by the learned AR that this company, ‘Jindal’, is functionally comparable to the assessee in the case on hand and passes all the filters applied by the TPO. According to the learned AR, the TPO himself had selected this company, ‘Jindal’ as a comparable in the earlier Assessment Years 2011-12 and 2012-13 and also in the subsequent Assessment Year 2015- 16 and as the facts in the year under consideration are similar, there is no good reason to exclude this company from the final set of comparables in this year. In support of the claim that this company ‘Jindal’ was functionally comparable to the assessee in the case on hand, the learned AR placed reliance on the decision in the case of CGI Information Systems and Management Consultants (P) Ltd.,
IT(TP)A No.3068/Bang/2018 Page 19 of 27 for Assessment Year 2012-13 (supra), wherein this company ‘Jindal’ was held as comparable to companies rendering ITES.
12.3 Per contra, the learned DR for Revenue supported the orders of the TPO / DRP in not including this company ‘Jindal’ in the final set of comparables.
12.4.1 We have considered the rival contentions / submissions put forth and perused the material on record. We have also perused the Annual Report of this company, ‘Jindal’; which is placed at pages 498 to 975 of the paper book. At page 130 of the Annual Report (i.e., page 627 of the paper book), it is mentioned that the company is engaged in providing call centre services, both in the overseas and domestic market; export of call centre services forming a major part of its business activities. In these circumstances, the observation of the DRP that this company ‘Jindal’ is engaged in software development services and ITES and segmental information is not available is not a factually correct observation; as borne out from the Annual Report of this company. Further, at page 160 of the Annual Report (i.e., page 657 of the paper book), it is seen that the segmental data of domestic and international segments of operation are given; thereby rendering the observations of the TPO is factually incorrect.
12.4.2 As far as the functional comparability of this company, ‘Jindal’ is concerned, we find that the Co-ordinate Bench of this Tribunal, in the case of CGI Information Systems and Management Consultants Pvt. Ltd., (supra) for Assessment Year 2012-13 has held that this company should be included in the set of comparables for companies rendering ITES and in this regard at para 56 thereof has held as under:-
IT(TP)A No.3068/Bang/2018 Page 20 of 27 12.4.3 In respect of the assessee in the case on hand also, the facts are similar to the cited case (supra). It is also seen that this company, ‘Jindal’ was chosen / accepted by the TPO as comparable to the assessee in the case on hand both in the earlier Assessment Years 2011-12 and 2012-13 and again in the immediately subsequent Assessment Year 2015-16. In this view of the matter, as discussed above, we are of the view that the above cited decision in the case of CGI Information System and Management Consultant Pvt. Ltd., (supra) would apply to the facts and circumstances of the case on hand also being similar; as seen from the acceptance of the company ‘Jindal’ by the TPO in both earlier and subsequent Assessment Years. Therefore, taking into consideration the factual matrix of the case as discussed above, Revenue’s stand of accepting this company as a comparable both in earlier Assessment Years and the immediately subsequent Assessment Year 2015-16 and respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of CGI Information Systems
IT(TP)A No.3068/Bang/2018 Page 21 of 27 and Management Consultants (P) Ltd., (supra), we direct the AO / TPO to include this company ‘Jindal Intellicom Ltd.,’ in the final set of comparables.
Ground No.12 – Working Capital Adjustment 13.1 In this ground (supra), the assessee contends that the TPO / DRP have erred in not allowing appropriate adjustments towards working capital differential existing between the assessee vis-à-vis the independent comparable companies.
13.2 In his order, the TPO, after a detailed discussion, held that no working capital adjustment will be allowed. The gist of the reasons adduced by the TPO in his order are as under:- i) Average working capital will not show the actual working capital employed during the year; ii) Segmental working capital is not discussed in the Annual Reports. iii) Cost of capital is different for different companies.
The DRP concurred with the reasoning / views given by the TPO and confirmed the action of the TPO in not allowing any working capital adjustment.
13.3 Before us, the learned AR of the assessee submitted that it is accepted principle, upheld in several decisions of various Tribunals, that working capital adjustments shall be allowed on actual basis. It was submitted that the assessee had filed the computation of working capital adjustment before the DRP in Form 35A, but the DRP had disregarded the same. It was submitted by the learned AR that a Co-ordinate Bench of this Tribunal in the case of Huawei Technologies India (P) Ltd., Vs. JCIT (2019) 101 taxmann.com 313 (Bangalore
IT(TP)A No.3068/Bang/2018 Page 22 of 27 – Trib) has discussed the matter and held that working capital has to be allowed. The learned AR prayed that in view of the above, the TPO be directed to allow working capital adjustment on actual basis.
13.4 Per contra, the learned DR for Revenue supported the orders of the TPO / DRP in the matter.
13.5.1 We have considered the rival submissions and perused the material on record; including the judicial pronouncement cited. We find that the assessee has filed the computation of working capital adjustment before the DRP; copy of which is placed at page 226 of the paper book; but the DRP has not considered the same. We also find that the Co-ordinate Bench of this Tribunal in the case of Huawei Technologies India (P) Ltd., Vs. JCIT (2019) 101 taxmann.com 313 (Bang. – Trib.) has discussed all the reasons on the issue and held that working capital shall be allowed; holding as under at paras 10 to 18 thereof:-
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IT(TP)A No.3068/Bang/2018 Page 26 of 27 13.5.2 Respectfully following the above decision of the Co-ordinate Bench in the case of Huawei Technologies India Pvt. Ltd., (supra), we also hold that the working capital adjustment is to be allowed as per actuals, after considering the decisions rendered in this order on the exclusion / inclusion of comparable companies out of / into the final set of comparables. The TPO / AO are accordingly directed.
IT(TP)A No.3068/Bang/2018 Page 27 of 27
In the result, the assessee’s appeal for Assessment Year 2014-15 is partly allowed.
Order pronounced in the open court on this day of July, 2019.