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TMI Blog2019 (4) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... en the TPO has rightly determined the arm's length price u/s 92CA(3) in respect of international transaction entered into by the assessee during the Financial Year 2004-05. The reliance is placed on the decision of the Ld. ITAT in the case of Serdia Pharmaceuticals (I) Pvt. Ltd. vs ACIT (ITAT - Mumbai). 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 recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iguration, 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. 8. CSG India also renders liaison services to CSG UK which includes liaising with potential customers and communicating with them about the services and products of CSG UK in India. 9. CSG India also renders maintenance services to CSG UK, which involves warranty related services on behalf of CSG UK., error verification, bypass, big fix assistance in update and new release implementation and help desk services. 10. During the course of transfer pricing assessment proceedings, on examination of FAR analysis conducted by the assessee, the TPO noticed that the assessee company has not selected appropriate comparables to bench mark the international transactions. According to the TPO, entire selection process of the comparables and the comparability analysis is questionabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: 1. Four soft Ltd 2. Geometirid Software Solutions Ltd 3. Tata Elxsi [Seg] 4. Flextroncis [Seg] 5. L & T Infotech Ltd 6. Satyam 7. Compulink Systems Ltd 17. After considering the objections of the assessee, the final set of comparables selected is as follows: Sl . No. Company Name Sales OP to Total Cost , 1 Bodhtree consulting ltd 3.87 24.851 9 Akshay Software Technologies Limited 5.89 7.72 3 Lanco G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of working capital adjustment is concerned, the ld. CIT(A) observed that it is logical to make adjustments on account of working capital of the comparables and found that the only objection of the TPO was with regard to not allowing working capital adjustment is the difficulty in working out such adjustments. However, the ld. CIT(A) found that the working capital adjustment has been made in the case of the assessee for assessment year 2007-08. Considering this fact, the ld. CIT(A) directed the TPO to give working capital adjustment on the same basis as given in assessment year 2007-08. 24. Before us, the ld. DR strongly supported the findings of the TPO. It is the say of the ld. DR that in his grounds of appeal before the first appellate authority, the assessee has never raised any ground for the inclusion/exclusion of any comparable. Therefore, the first appellate authority has erred in excluding one of the comparables. The ld. DR drew our attention to the annual accounts of Thirdware Solutions Ltd and pointed out that the sales of Rs. 29.11 crores includes software services of Rs. 8 crores, export of Rs. 14.74 crores and the Revenue from subscription of Rs. 3.94 crores. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles, inclusion/exclusion is imbibed in the grounds itself. 29. The Annual Report of Thirdware Solution Pvt Ltd has been carefully examined. As mentioned elsewhere, the sales of this company includes : a) sale of licence b) software services c) export d) revenue from subscription. 30. However, a perusal of the annual report reveals that there is no segmental reporting. In our understanding of the facts, even if the Revenue from the three services mentioned at b), c) and d) above comprises of 90% of the total sales, still segmental reporting is a must to justify the inclusion of this comparable. Though the first appellate authority has excluded this company on the ground that it has supernormal profits, but that is not a good reason for excluding this company, but having no segmental accounts make this company excluded from the final set of comparables. Though we do not agree with the exclusion on the point of super normal profits, but nevertheless, for want of segmental reporting, we direct for exclusion of this company from the final set of comparables. 31. In so far as L & T is concerned, there is no dispute that the same was excluded by the TPO for related part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ech. Being a typographical error, Infosys Ltd should be included. 36. Per contra, the ld. counsel for the assessee vehemently opposed to the admission of this additional ground. It is the say of the ld. counsel for the assessee that if it was erroneous on the part of the TPO/Assessing Officer, the error could have been easily rectified u/s 54 of the Act and if such error is prejudicial to the interest of the revenue, the same could have been rectified u/s 263 of the Act. Therefore, the plea taken by the Revenue cannot be a matter of additional ground. 37. Having heard the rival contentions, 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 ground is admitted. 38. A perusal of the TP study shows that the assessee did include M/s Infosys in its list of comparables. The TPO made a fresh search during the TP assessment proceedings and from his fresh search, 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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