TMI Blog2018 (10) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax (Appeals)-2, Pune, dated 31.12.2013 relating to assessment year 2009-10 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1] The learned DRP/A.O. erred in making an addition of ₹ 21,85,13,439/- by recomputing the transfer price of the international transactions relating to software development services provided by the appellant to its AEs. 1.1] The learned DRPIA.O. erred in rejecting the various companies considered as comparable entities by the assessee company while determining the ALP in respect of the provision of software development services without appreciating that the companies selected by the assessee were comparable as per the FAR analysis and hence, there was no reason to reject them. 1.2] The learned DRP/A.O. erred in including various companies as comparable with the appellant without appreciating that the said companies were not comparable with the appellant company and hence, the same ought to be excluded while determining the final set of comparables. 1.3] The learned A.O./TPO erred in not allowing adjustment for working capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that concern PSI Data Systems Ltd. should be included in the final set of comparables. The assessee also asked for working capital adjustment and also that forex loss should be excluded while determining the operating margins of the assessee. The DRP while disposing of the objections raised by the assessee held that Bodhtree Consulting Ltd. and Kals Information Systems Ltd. were comparables and had to be selected in the final set of comparables. The DRP directed the Assessing Officer to allow working capital adjustment. In respect of the concern PSI Data Systems Ltd. the Assessing Officer was directed to see if RPT was less than 25%, then the said concern was to be included in the final set and if was more than 25% then it was to be excluded. In respect of exclusion to forex loss from the profit margins of the assessee, the DRP held the same to be part of operating profit. The Assessing Officer in the final assessment order passed, selected the five companies and the average margin of the comparable worked out to 25.22%, as against the operating margin of the assessee at 3.91%. The Assessing Officer thus, made an addition of ₹ 21,85,13,439/- under the transfer pricing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the final assessment order does not grant the same and only directions are to be given for allowing working capital adjustment. He further pointed that in case the above two issues are decided then the inclusion of PSI Data Systems Ltd. or not, would become academic. 9. The learned Departmental Representative for the Revenue on the other hand placed reliance on the orders of DR/ TPO. 10. We have heard the rival contentions and perused the records. The assessee is providing software development services to its AEs. The total transactions with the AEs during the year were ₹ 33.94 crores which are tabulated at page 2 of the order of TPO. The assessee had selected CUP/TNMM for different transactions with the AEs, but the TPO had applied TNMM for all the international transactions with its AEs. The ld. AR for the assessee pointed out that there was no dispute with regard to application of TNMM. The TPO had finally selected five concerns as functionally comparables to the assessee, which have been adopted by the DRP and the Assessing Officer in the final assessment order. The list of the said companies is as under: Sr. No. Name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuating margins shown by the company over the period of years. In the financial 2007-08 the said concern had shown margin of 17% whereas in financial year 2008-09 it had shown margin of 56% and in financial year 2009-10, 40%. The Tribunal in the case of Deputy Commissioner of Income Tax Vs. Barclays Technology Center India (P.) Ltd. (supra) while deciding the appeal for assessment year 2009-10 has held that the said concern needs to be excluded because of the huge fluctuating margins. Accordingly, we hold that Bodhtree Consulting Ltd. is to be excluded from the final list of comparables. 14. Now, coming to the next concern i.e. Kals Information Systems Ltd., the Tribunal in assessee s own case for assessment year 2008-09 has held that the said concern to be not functionally comparable and had excluded the same. Further, while deciding the appeal for assessment year 2009-10 in the case of John Deere India (P.) Ltd. (supra) the Tribunal observed that the said concern was also engaged in sale of software product and providing software services and no segmental details were available. Therefore, the said concern had to be excluded while benchmarking the arm s length price of interna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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