TMI Blog2014 (6) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... O had included the company which was also engaged in portfolio management services and investment activities and such services cannot be compared to Assessee as both are in divergent sectors - the company cannot be a comparable, thus, the AO is directed not to treat the company as comparable to the assessee – AO/TPO is directed to determine the ALP – Decided in favour of Assessee. - ITA No. 1606/Hyd/ 2010 - - - Dated:- 30-5-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Shri Pradeep Kasthala Ms. K. Neeraja For the Respondent : Shri D. Sudhakar Rao ORDER Per Saktijit Dey, J. M: This appeal of the assessee is directed against the assessment order dated 13-10-2010 passed u/s 143(3) read with section 144C of the Act on the directions of the Dispute Resolution Panel (DRP) pertaining to the assessment year 2006/07. 2. Briefly, the facts are the assessee a company incorporated under the Companies Act, 1956 is part of the avineon group which specialises in generation, manipulation, management, and maintenance of data for GIS and other information management systems, and offers full range of services necessary for successful geospati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables with average operating margin of 24% on cost. After allowing working capital adjustment of 1.49%, the arms length margin was determined at 22.51% and accordingly the ALP was determined at Rs.6,61,71,925/- in respect of provision of IT enabled services and Rs.19,31,523/- in respect of reimbursement of expenses at cost. Which resulted in shortfall of Rs.63,59,969/- which was treated as the adjustment to be made u/s 92CA of the Act. In terms with the orders passed by the TPO, the Assessing Officer passed the draft assessment order incorporating the adjustment recommended by the TPO. Though the assessee objected to the draft assessment order before the DRP, however the DRP vide order dated 27-9-2010 dismissed the objections of the assessee and accordingly draft assessment order was finalised. Being aggrieved of the assessment order so passed, the assessee is in appeal before us raising seven grounds. 4. Ground No1 and 7 are general in nature and they do not require any adjudication. 5. At the outset, the learned AR submitted before us that he will confine his argument only to ground No.4 and additional ground relating to working capital adjustment and ground No.5 relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors to compute working capital adjustment becomes meaningless exercise. It is further opined that in the absence of cogent reasons, there is no case for reworking the working capital adjustment. We are not in agreement with the opinion of the DRP. Assessee contends that trade practice of advances and subsequent adjustment of these advances against invoices raised, being captive service provider has a bearing on profit margin, therefore, working capital requirement should be taken care of by way of adjustments. Whether similar conditions exist for other comparables require examination and adjustment towards working capital. Before us, the AR furnished detailed annexure making working capital adjustment to justify 3.30% sought by Assessee as against 1.38% given the TPO. Similar issue was discussed in the case of bearing Point Business Consultancy Pvt. Ltd. (supra) and the coordinate bench restored to the file of TPO vide para 5.4.2. Since working capital adjustment require verification by the TPO, in the interest of justice, we restore the issue to the file of TPO with a direction to examine the veracity of Assessee s claim and take proper decision in correctly computing the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... using the record, it is observed that the TPO had included the said company which was also engaged in portfolio management services and investment activities and such services cannot be compared to Assessee as both are in divergent sectors. In this connection, we refer to Rule 10B(2), which is as under: ..the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely: a) the specific characteristics of the property transferred or services provided in either transaction. b) .. c) .. 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 or retail. The learned TPO had considered the said company in spite of the related parties exceeding 15% of the turnover. Assessee submitted said company has RPT of 15.72%. The co-ordinate bench in the case of LG Soft India Pvt. Ltd. Vs. DCIT, Bangalore [IT(TP)A No. 1121/Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate bench of this Tribunal has held in assessee s own case that the aforesaid company cannot be treated as a comparable to the assessee for the reasons stated by the co-ordinate bench, we also direct the Assessing Officer/ TPO to exclude the aforesaid company from the list of comparables. Maple (e) Solutions:- 17. The learned AR objecting to the aforesaid company being selected as comparable, submitted that the said company cannot be treated as comparable in view of the fact that the directors of the company were found to be involved in fraud which might have affected the financial results of the company. The learned AR submitted that the DRP while considering assessee s objection for the assessment year 2007-08 has excluded the aforesaid company from the list of comparables. It was therefore contended that the aforesaid company should be excluded from the list of comparables for this assessment year also. 18. The learned DR, on the other hand, submitted that though the DRP has rejected the aforesaid company as a comparable for the assessment year 2007-08 in assessee s case but the conditions prevailing in assessment year 2007-08 may not be applicable for the impugned as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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