TMI Blog2021 (2) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore the aforesaid two companies are directed to be excluded from the list of comparable companies. Grant of negative working capital adjustment - HELD THAT:- Working capital adjustment itself is computed on the basis of outstanding current assets and liabilities at the year end. It means that other things being equal, an entity having higher working capital will incur more interest cost which will reduce profitability. Hence no importance shall be given to pricing aspect. Since the assessee does not have any working capital risk, the question of negative working capital does not arise TPO is directed to compute the ALP in the light of the directions as given above, after affording Assessee opportunity of being heard. - IT (TP) A No. 2632/Bang/2019 - - - Dated:- 22-1-2021 - N. V. Vasudevan , Vice President And B. R. Baskaran , Member (A) For the Appellant : Padamchand Khincha, CA For the Respondents : Neera Malhotra, CIT (DR) ORDER N. V. Vasudevan, Vice President This is an appeal by the Assessee against the order dated 1.10.2018 of DCIT-3(1)(1), Bengaluru, relating to AY 2012-13. 2. The grounds raised in the appeal by the Assessee are with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal PrintSystems Ltd.(Seg)(BPO) 6,17,67,000 3,87,49,000 52.46 3. Informed Technologies India Ltd., 1,96,36,431 1,82,45,770 6.0 8 4. Infosys B P 0 Ltd. 1316,75,11,974 962,91,06,964 36.30 5. Jindal Intellicom Ltd. 30,27,51,875 30,29,02,990 0.05 6. Microgerietic Systems Ltd. 1,29,93,217 1,08,63,390 19.61 7. T C S E-Serve Ltd. 15,78,44,000 9,64,28,000 63.69 8. B N R Udyog Ltd.(Seg)(Medical Transcription) 1,47,04,000 97,87,000 50.61 9. Excel InfowaysLtd.(Seg)(IT/B VPO) 790,96,95,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the Assessee filed an appeal against the final order of the AO. The Hon'ble Tribunal vide its order in IT(TP)A No. 244 (Bang) 2017 dated 28.07.2017 remanded back to the AO/TPO with the following direction:- 7. We have considered the rival submissions. First of all, we reproduce para-33 of the judgment of the Hon'ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) Private Limited (Supra) as under:- 33. Such being the case, it is clear that exclusion of some companies whose functions are broadly similar and whose profile in respect of the activity in question can be viewed independently from other activities cannot be subject to a per se standard of loss making company or an abnormal profit making concern or huge or mega turnover company. As explained earlier, Rule 108(2) guides the six methods outlined in clauses (a) to (f) of Rule 108(1), while judging comparability. Rule 108(3) on the other hand, indicates the approach to be adopted where differences and dissimilarities are apparent. Therefore, the mere circumstances of a company otherwise conforming to the stipulations in Rule 10B(2) in all details, presenting a peculiar fea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of chart. In the said chart, the contentions are raised regarding margin computational error in the respect of two comparables i.e., Accentia Technologies Ltd. and e4e Healthcare Business Private Limited and for the remaining four comparables, the only contention raised was regarding turnover filter and there is no contention raised regarding the functionality aspect. Hence on this aspect, we find no apparent mistake in the impugned Tribunal order because it appears that no argument was made in respect of this aspect. Regarding the second aspect i.e. regarding Foreign Exchange fluctuation gain/loss, in the chart, several judgments are cited by Ld. AR of assessee but in the impugned Tribunal order although ground No. 9 is reproduced by the Tribunal on page No. 4 of the Tribunal order, there is no decision on this aspect and therefore, this is an apparent mistake in the impugned Tribunal order. I-fence we decide this aspect as per ground No. 9 raised before the Tribunal. We find that the details regarding foreign gain/loss is not available on record as to whether the gain/loss is in respect of turnover of the present year or it is in respect of the turnover of an earlier year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparing Assessee's profit margin with that of comparable companies. The TPO in this order made an adjustment of INR 14,30,29,841 in relation to the ALP of international transaction of provision of IT enabled services was re-determined. Based on this order of the TPO the AO issued a draft assessment order on which the assessee filed objections before DRP. 10. On objection by the Assessee to the order of the TPO/AO the DRP excluded BNR Udyog Ltd., from the list of comparable companies. Therefore only 6 out of the 10 comparable companies remained as comparable companies after the order of the DRP. In this appeal the Assessee seeks only two reliefs viz., (i) exclusion of two comparable companies Infosys BPO Ltd., and TCS e-Serve Ltd. (having turnover of ₹ 1312.14 Crores and ₹ 1578.44 Crores respectively) and (ii) delete the addition to the average arithmetic mean margin of comparables negative working capital at -1.34% thereby increasing the average arithmetic mean profit margins of comparable companies to that extent. 11. As far as excluding the companies on the basis of turnover is concerned, the issue has been settled in several decisions of the Tribunal and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (supra) and Capegemini India Pvt. Ltd. (supra) are to be regarded as per incuriam as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of M/S. NTT Data (supra), Societe Generate Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. counsel for the assessee in this case that the assessee is a captive unit which is entirely funded by the AE. The assessee has no borrowings and is fully compensated by the parent on a total cost plus. The assessee has no working capital risk - in other words, it is a risk-insulated service provider to the parent. The only customer of the company is its parent company. The Ld. counsel for the assessee has relied on a host of ITAT decisions, the main decision being that of M/S. Software AG Bangalore Technologies Pvt. Ltd. (supra) which in turn has relied on the decision of ITAT Hyderabad in the case of Adaptec (India) Private Limited and contended that no negative working capital adjustment is called for. The Ld. DR's reliance is on the decision in the case of Technotree Convergence P. Ltd. (supra) wherein it was held that negative working capital adjustment has to be allowed. 15. Comparables chosen operate under varied economic conditions. Therefore, while comparing a company to that of similar companies, it is necessary to undertake comparability adjustments. Balance sheet adjustments are intended to account for different levels of inventories, receivables, payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any additional cost as done by TPO, which indirectly enhances the ALP artificially. The contrary view expressed in decision cited by the learned DR takes the view that Working capital adjustment is required in all cases as any credit extended to customers will result in cash locked up and will result in the assessee borrowing money from the banks and incur additional cost towards interest on these borrowings which cost will have effect on the price charged. It is the reasoning in these decisions that under TNM method that every ingredient of profit margins of comparable companies are analysed, whether it is positive or negative. The decision proceeds on the basis of effect on price owing to working capital requirement. We are of the view that working capital adjustment itself is computed on the basis of outstanding current assets and liabilities at the year end. It means that other things being equal, an entity having higher working capital will incur more interest cost which will reduce profitability. Hence no importance shall be given to pricing aspect. Since the assessee does not have any working capital risk, the question of negative working capital does not arise. 17. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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