TMI Blog2016 (2) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the comparable companies considered in the said case with that of the assessee. In our opinion, assessee is justified in relying on the said decision which was also for the very same assessment year. Hon’ble Delhi High Court in the case of CIT Vs M/s Agnity India Technologies Pvt. Ltd. (2013 (7) TMI 696 - DELHI HIGH COURT ) had affirmed an order of this Tribunal were M/s Infosys Technologies Ltd was directed to be excluded from the list of comparables considering the peculiar features of the said company. Hence, no purpose will be served in remitting the question of comparability of M/s Infosys Tech.Ltd back to the TPO/AO. In view of the above discussion, we direct exclusion of M/s Bodhtree Consulting Ltd., M/s Tata Elxsi Ltd.(Seg.) and M/s Infosys Tech.Ltd from the list of comparables. Working capital adjustment - Held that:- AO cannot force an artificial limitation to the actual working capital adjustment ratio derived from the comparable companies considered for the arm’s length study. The restriction of working capital adjustment based on PLR of SBI will be appropriate since it is based on a presumption with all lending or credit are having uniform interest rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zontals. Learned TPO, thereafter, for various reasons cited by him in the show cause notice issued to the assessee, rejected all but 8 of the comparables chosen by the assessee and added three of his own which he selected from the very same database. The new companies added by him were M/s Kals Information Systems Ltd, M/s Bodhtree Consulting Ltd and M/s Tata Elxsi Ltd (Segmental). The final list of comparable considered by the TPO and their margin as a percentage of profit of cost read as under; Sl. No. Name of the comparable Sales (in Rs.) Cost (in Rs) Margin 1 Kals Information Systems Ltd. 2,14,04.686 1,87,93,813 13.89% 2 Akshay Software Technologies Ltd. 12,23,21,483 11,31,49,350 8.11% 3 Bodhtree Consulting Ltd. 16,05,75,212 9,89,56,821 62.27% 4 R.S.Software (India)Ltd. 1,49,57,12,634 1,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 963,603,696 Shortfall being adjustment u/s 92CA 48,961,089 The assessment was completed thereafter by making an addition of the above amount. 4. Aggrieved, assessee moved in appeal before the learned CIT(A). Apart from assailing the comparables considered by the TPO, assessee also argued before the CIT(A) that the working capital adjustment though it was computed by the TPO at 3.26% was unjustly restricted to 1.71%. Learned CIT(A) did not accept any of these contentions, but confirmed the addition made by the AO. 5. Now before us learned AR submitted that apart from working capital adjustment which was required to be given he was assailing inclusion of three comparable companies namely M/s Bodhtree Consulting Ltd., M/s Tata Elxsi Ltd (Segmental) and M/s Infosys Ltd. According to the learned AR, even though, Infosys Ltd. was one among the comparables in the list considered by the assessee in its TP study, it had specifically sought exclusion of the said company before the TPO itself, relying on the judgment of the Hon ble Delhi High Court in the case of M/s Agnity India Technologies Pvt. Ltd Vs ITO(2013) 93 DTR 0375 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO and rejected. In sofaras the working capital was concerned learned DR submitted that excessive working capital adjustment if given would negate the purpose of a TP study. 9. We have perused the orders and heard the rival contentions. Profile of the assessee as mentioned by the TPO himself at page no.2 states as under; Citrix R D India is engaged in the business of providing software research and development services to Citrix US and Citrix Online LL.C. . Assessee had considered itself to be software development services provider and the TPO had also accepted this. The most appropriate method selected both by assessee and TPO were TNM method. This method obviates necessity for complete product identity or services identity between the tested party and the comparables. Broad functional similarities would suffice. However, where the functional profile show that the dissimilarity, even within the very same segment was so significant so as to erode the comparability, then there is a good case for exclusion. Assessee has mainly relied on the decision of the Co-ordinate Bench in the case of M/s Cisco Systems (Ind.) Pvt.Ltd (Supra). The said company was also engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had itself proposed this company as comparable, in our opinion, should not be the basis on which the said company should be retained as a comparable, when factually it is shown that the said company is a software product company and not a software development services company . 11. Observations of the Co-ordinate Bench with regard to M/s Tata Elxsi Ltd. as it appears at para-26.4 of the very same order is re-produced hereunder; 26.4 Tata Elxsi Ltd.:- As far as this company is concerned, it is not in dispute before us that in assessee s own case for the A.Y. 2007-08, this company was not regarded as a comparable in its software development services segment in ITA No.1076/Bang/2011, order dated 29.3.2013. Following were the relevant observations of the Tribunal:- II. UNREASONABLE COMPARABILITY CRITERIA : 19. The learned Chartered Accountant pleaded that out of the six comparables shortlisted above as comparables based on the turnover filter, the following two companies, namely (i) Tata Elxsi Ltd; and (ii) M/s. Flextronics Software Systems Ltd., deserve to be eliminated for the following reasons : (i) Tata Elxsi Ltd., : The company operates in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally similar for the subsequent FY 2006-07 even when no facts have been changed from the preceding year. Thus the taxpayer is arguing against this comparable as the company was not considered as a comparable by the taxpayer for the present FY 2006-07. 21. We have heard the rival submissions and considered the facts and materials on record. After considering the submissions, we find that Tata Elxsi and Flextronics are functionally different from that of the assessee and hence they deserve to be deleted from the list of six comparables and hence there remains only four companies as comparables, as listed below: 26.5. Following the aforesaid decision of the Tribunal, we hold that M/S.Tata Elxsi Ltd. should not be regarded as a comparable . 12. Observation of the Co-ordinate Bench in the very same order with regard to the comparability of M/s Infosys Ltd appears at para-26.2 of the order which is re-produced here under; 26.2 Infosys Ltd.:- As far as this company is concerned, it is not in dispute before us that this company has been considered to be functionally different from a company providing simple software development services, as this company owns signi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any has substantial revenues from software products and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in AUTOLAY , a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of operations and the brand attributable profit margins of this company have not been extraordinary. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. 11.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functional ..... X X X X Extracts X X X X X X X X Extracts X X X X
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