TMI Blog2015 (9) TMI 1547X X X X Extracts X X X X X X X X Extracts X X X X ..... , 24 hour service for reception, telephones, select restaurants, bank counter, beauty saloon, barber shop, car rental, shopping centre, laundry/valet, health club, business centre services, etc. do not involve carrying out any work which results into production of the desired object and, therefore, would be outside the purview of section 194C of the Act. Thus we are of the opinion that payment made to Club Cabana and Golden Palms are outside the purview of section 194C of the act. The appeal on this issue is allowed. - IT(TP)A No.870/Bang/2013 - - - Dated:- 23-9-2015 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri Pravin Kishore Prasad, CA For The Respondent : Shri P.K. Srihari, Addl. CIT(DR) ORDER Per Asha Vijayaraghavan, Judicial Member This appeal by the assessee is against the order dated 22.3.2013 of the CIT(Appeals)-III, Bangalore for the assessment year 2008-09. 2. The assessee company is a wholly owned subsidiary of Apigee Corporation, USA ( Apigee Corp or Apigee ) [formerly known as Sonoa Systems Inc. ( Sonoa mc )]. The assessee is a captive offshore development centre of Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R S Software (India) Ltd 5.58% 5 Softsol India Ltd 15.42% 6 Sonata Software Ltd 18.88% 7 VMF Soft Tech Ltd 0.73% Arithmetic Mean 9.01% 8. The TPO selected the following comparables:- TPO's Comparables Sr. No. Name of the Company OP/TC (Unadjusted) 1 Avani Cincom Technologies 25.62% 2 Bodhtree Consulting Ltd. 18.72% 3 Celestial Biolabs 87.94% 4 e-zest Solutions Ltd. 29.81% 5 Flextronics (Aricent) 7.86% 6 iGate Global Solution Ltd. 13.99% 7 Infosys 40.37% 8 K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., it was the assessee s submission that the assessee offers diversified operations such as software solutions, software development, consulting and information technology services to various clients. The assessee was also a products development company and has developed innovative product lines such as Dxchange, CARMA etc. Reliance was placed on the decision of 3DPLM Software Solutions Ltd. in IT(TP)A No.1303/Bang/2012 for AY 2008-09 and Trilogy E-Business Software India (P) Ltd. in ITA No.1054/Bang/2011 for AY 2007-08. 11. We find that there is merit in the objection of the ld. counsel for the assessee and hence we direct that Avani Cimcon Technologies Ltd. be excluded from the list of comparables selected by the TPO. 12. With regard to the other 8 comparables selected by the TPO, the ld. counsel for the assessee submitted that these companies were functionally different from the assessee for the following reasons:- 1. Celestial Biolabs Ltd. The company is into bio-informatics software product/services and in the development of products in the field of bio-technology and pharmaceuticals. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Trilogy E-Business Software India P. Ltd. (ITA No.1054/Bang/2011 (AY 2007-08) - Systech Integrators India Pvt. Ltd., ITA No.1283/Bang/2012 (AY 2008-09) - Telcordia Technologies India Pvt. Ltd., ITA No.7821/Mum/2011 (AY 2007-08) 14. With regard to the other three comparables, the ld. counsel for the assessee submitted that these companies are also to be excluded from the list of comparables selected by the TPO for the following reasons:- 1. Avani Cimcon Technologies Ltd. Functionally different, diversified operations: The company offers software solutions, software development consulting and information technology services to various clients. Product development company The company has developed innovative product lines such as Dxchange, CARMA etc. It was submitted that the website of this company substantiates the same. 2. Infosys Technologies Full-fledged risk assuming entrepreneur Ltd. It is a giant company in the area of software development and assumed all risks leading to higher profits and is therefore not comparable with to the assessee which is a captive unit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in accordance with Rule 10B(1) on account of risk profile of the assessee. The ld. counsel for the assessee submitted as follows:- iii. Working capital adjustment is essentially an adjustment for the opportunity cost of making investments in working capital (i.e., inventories, accounts receivable/debtors and accounts payable/creditors) which require capital and operating assets. At arm s length, an uncontrolled entity will expect to earn a market rate of return on that capital, independent of its operations. However, the amount of capital required varies greatly, because the level of inventories, debtors and creditors measured as a percentage of the total cost varies. There is an effect on profits from investing in different levels of working capital due to differences reflected in cash collection cycle. Such differences in collection cycle imply differences in credits granted to customers and such a credit function is akin to an additional service for which markets are willing to pay. iv. High levels of working capital create costs either in the form of incurred interest or in the form of opportunity costs. Therefore, no profit maximizing/ entrepreneurial firm would hold wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP provisions: (iv) Adjustments for the differences between the tested party and the uncontrolled taxpayers. If there are differences between the tested party and an uncontrolled comparable that would materially affect the profits determined under the relevant profit level indicator, adjustments should be made according to the comparability provisions of 1.482-1(d)(2). In some cases, the assets of an uncontrolled comparable may need to be adjusted to achieve greater comparability between the tested party and the uncontrolled comparable. In such cases, the uncontrolled comparable s operating income attributable to those assets must also be adjusted before computing a profit level indicator in order to reflect the income and expense attributable to the adjusted assets. In certain cases it may also be appropriate to adjust the operating profit of the tested party and comparable parties. For example, where there are material differences in accounts payable among the comparable parties and the tested party, it will generally be appropriate to adjust the operating profit of each party by increasing it to reflect an imputed interest charge on each party s accounts payable. x. Mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (page 295 to 299 of Case Law Compendium, para 5 to 6.1) b. Demag Cranes Components (India) Private Limited - ITA No.120/PN/2o11(AY 2006-07) (page 179-189 of Case Law Compendium, para 18 - 33) c. TNT India Private Limited - ITA No. 1442(BNG)/o8 (Page 281 of the Case Law Compendium, para 13.2) d. Sony India Private Limited- 1731/Del/2009 e. Mentor Graphics (Noida) Pvt. Ltd. Vs. DCIT (112 TTJ 408) (ITA No. 1969/D/2006) (AY: 2002- 03) (page 337 of Case Law Compendium, para 27) f. E-Gain Communications (P) Ltd. vs. ITO (118 ITD 243) (ITA No. 1685/Pn/2007) (AY: 2004-05) (page 247 - 249 of Case Law Compendium, para 36). 19. We find that the claim of the assessee for providing working capital adjustment is to be upheld and hence we direct the AO/TPO to work out the same. 20. The ld. counsel for the assessee also brought to our notice the grounds of appeal at paras 5 and 6 of the appeal memo. Para 5(a) reads as follows:- That the CIT(A) based on mere surmise and conjecture had concluded that the assessee is not interested in pursuing the grounds raised in the appeal and accordingly erred in upholding the order of AO. 21. Ground No.5(b) states that the AO erred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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