TMI Blog2019 (4) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables. L T - there is no dispute that the same was excluded by the TPO for related party transactions. Therefore, inclusion of the same in the final set of comparables is uncalled for and deserves to be excluded. Working capital adjustment - since the assessee has filed a detailed working of the working capital adjustment the same cannot be dismissed on the ground that the assessee is in the service industry - we direct the TPO to grant working capital adjustment. See SUN LIFE INDIA SERVICE CENTRE PVT. LTD VERSUS DCIT, CIRCLE-2, GURGAON. [ 2015 (10) TMI 2431 - ITAT DELHI] The assessee is directed to furnish afresh a detailed working of the working capital adjustment. The TPO is directed to examine the same and decide the issue. Admission of additional ground - ground raised by the Revenue which states that the CIT(A) erred in not including M/s Infosys as one of the comparables, which was left out by the TPO due to inadvertence - HELD THAT:- We are of the opinion that merely because of provisions of section 154 or section 263 of the Act were available with the revenue, it cannot preclude revenue to raise additional ground before us. Therefore, additional gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in facts and law in directing the TPO to exclude the two companies, namely (i) L T Infotech (ii) M/s Thirdware Solution Ltd from the final set of comparables, when TPO has rightly drawn the conclusion that in view of the peculiarity of this case and also keeping in view of the unique nature of transactions involved, the comparables selected are justified and appropriate. 3. On the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in facts and law in holding that working capital adjustment should be allowed on the same lines as given in the Assessment Year 2007-08, when the TPO has rightly drawn the conclusion that the biggest problem about this adjustment is the inability to find out the position of the payables and receivables at the beginning and end of the year. Moreover, the credit terms offered by the comparables are not known. The debtors and creditors shown in the balance sheet of the comparables contain both trade and non-trade creditors. In the absence of a break up, such adjustment cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges on Group entities - 5.462.035 5. The transfer pricing approach adopted by the assessee has categorized itself as a professional service provider in the I.T. industry. The CSG Systems International Inc, USA and its wholly owned subsidiaries serve more than 265 service providers in more than 40 countries. In February 2003, CSG India entered into an independent agreement with Bharti Tele-Ventures Ltd to provide support services to enable Bharti to operate its billing system. 6. CSG renders professional services to CSG, UK. The professional services rendered by CSG India entail analysis, configuration, customization, integration, implementation and deployment of billing solutions of CSG, UK. The said services are provided as per the Inter-Company Service Agreement between CSG UK and CSG India. 7. The functions performed by CSG India and CSG UK in relation to the professional services are as follows: a) Product development; b) Integration and implementation; and c) Billing and collection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.99 27.35 6 Sasken Network Systems Ltd, 200503 14.44 16.64 7 Gebbs Infotech Limited 200503 14.74 16.52 8 V J I L Consulting Ltd 200503 15.6 6.68 9 Four soft ltd 200503 15.94 24.7 10 Thirdware Solution limited 200503 29.11 66.11 11 Geometric Software Solutions Co.ltd 200503 95.44 20.34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated and justified its transfer pricing method employed in the transfer pricing report and stated that the FAR analysis conducted by the assessee is adequate. 14. In its submissions, the assessee vehemently pointed out that in the fresh analysis carried out by the TPO, the TPO has failed to demonstrate the weight assigned to functions, assets and risks used in the fresh search carried out by the TPO as this seems to be the reason for discarding the comparables chosen by the assessee. 15. It was further pointed out that the turnover filed is not a correct filter in the case of the assessee and objected to the rejection of loss making companies from the set of comparables. It was pointed out that some of the comparables are functionally different and having related party transaction. The use of multiple year data was also objected. The assessee strongly pointed out that working capital adjustments and risk adjustment should be made to the comparables. 16. After considering the submissions of the assessee, the TPO partly accepted the contentions and agreed that the following companies are having related party transactions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fotech Ltd., 562.45 11.72 21.6392 , 18. Based on the above comparables, the ALP of the international transaction is calculated as under; Arm's length ratio 21.64% Total cost ₹ 99372436 Arms Length Profit ₹ 21503400 Arm's length revenue ₹ 120875836 Book Value of revenue ₹ 108173851 Difference ₹ 12701985 19. The assessee carried the matter before the ld. CIT(A) and strongly objected to the transfer pricing adjustment. It was strongly contended that the TPO has not made working capital adjustments. It was further contended that out of the comparable companies selected by the TPO in his order, one company, namely, Thirdware Solution Ltd has earned operating profit of 66.11% on operating cost and since the company is earning super normal profits, the same should be excluded. In support of this contention, reliance was placed on the following decisions of the Tribunal: a ) Egain Communications Pvt Ltd 118 ITD 243 {Pune] b) SAP Labs Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no question of any segmental account. The ld. DR further pointed out that super profits cannot be acriteria for exclusion of any comparable. For this proposition, reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors [India] Ltd 56 Taxmann.com 417. 25. In so far as the benefit of working capital is concerned, the ld. DR pointed out that though the FAR has referred to a chart in his order, but no such chart is found and, therefore, the basis of working capital adjustment is not known. 26. The ld. counsel for the assessee vehemently stated that when the assessee challenges the TP adjustment, the inclusion/exclusion of comparables is inherent in the grounds so taken. The counsel strongly contended that Thirdware Solutions Pvt Ltd does not have segmental account and therefore, for want of segmental data, the same cannot be used as a good comparable. It is the say of the ld. counsel for the assessee that in respect of other comparables, segmental data is available and therefore, they are good comparables. The ld. counsel for the assessee further pointed out to Exhibit 271 and 272 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same was excluded by the TPO for related party transactions. Therefore, inclusion of the same in the final set of comparables is uncalled for and deserves to be excluded. 32. Benefit of working capital adjustment has to be given to the assessee since the assessee has filed a detailed working of the working capital adjustment the same cannot be dismissed on the ground that the assessee is in the service industry. The co-ordinate bench in the case of Sun Life India Service Centre Private Limited has held as under: 28. We are not inclined to accept the view canvassed by the authorities below that the working capital adjustment cannot be allowed as the assessee is in service industry. Such an adjustment is restricted to inventory, trade receivables and trade payables. If a company carries high trade receivables, it would mean that it is allowing its customers relatively longer period to pay their dues, which will result into higher interest cost and the resultant low net profit. Similarly, by carrying high trade payables, a company benefits from a relatively longer period available to it for paying back the dues to its suppliers, which reduces the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO excluded certain comparables and made a final list of comparables as mentioned elsewhere. The exercise so done by the TPO does not leave any room for assumption that inadvertently he has not included M/s Infosys in the final set of comparables. On the contrary, it appears that non inclusion was intentional. 39. The plea of the Revenue that the ld. CIT(A) erred in not including M/s Infosys as one of the comparable is ill-founded because the assessee was in appeal before the ld. CIT(A) and since the assessee had no grievance for non inclusion of M/s Infosys how could the ld. CIT(A) have adjudicated on inclusion of Infosys unless he wanted to exercise his powers of enhancement. 40. Considering from all possible angles, we do not find any merit in the additional ground raised by the Revenue. 41. The ld. counsel for the assessee has not pressed the cross objections. Therefore, the same is dismissed as not pressed. 42. In the result, the appeal of the Revenue as well as the cross objections of the assessee stand dismissed. The order is pronounced in the open court on 11.03.2019. - - Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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