TMI Blog2021 (7) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that Thirdware being a product company is not a good comparable to a company engaged in software development services, therefore, the Assessing Officer is directed to exclude Thirdware from the final set of comparables. Working capital adjustment - HELD THAT:- We find that in assessment year 2010-11 the CIT(A) had allowed working capital adjustment on final set of comparables. The Revenue challenged the same before the Tribunal [ 2019 (10) TMI 1241 - ITAT MUMBAI] . The Coordinate Bench upheld the finding of CIT(A) in allowing working capital adjustment and rejected the ground raised by the Revenue. Similarly, in assessment year 2011-12 and 2013-14 the Tribunal allowed the benefit of working capital adjustment to the assessee following the order in assessment year 2010-11. No contrary material has been placed before us by the Revenue. Respectfully following the decision of Coordinate Bench in assessee's own case in the preceding assessment years and immediately succeeding assessment year, we direct the Assessing Officer to allow the benefit of working capital adjustment to the assessee. Consequently, ground No. 1.2.10 is allowed. Transfer Pricing (TP) adjustment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 5,73,09,922.00 The Assessing Officer passed the draft assessment order dated 29/02/2016 on the basis of adjustments proposed by the TPO. The assessee filed objections before the Dispute Resolution Panel(DRP) assailing the comparables selected by the TPO. The DRP partly accepted the submissions of assessee and directed to exclude some of the companies objected by the assessee in the list of comparables. Still aggrieved, the assessee is in appeal before the Tribunal. The assessee is further seeking exclusion of companies from the list of comparables for determining ALP with the AEs. 3. Shri Dhanesh Bafna appearing on behalf of the assessee stated at the outset that he would be pressing only ground No. 1.2.6 and 1.2.10 in respect of provisions of Software Development Services and ground No. 2.2.6 and 2.2.9 assailing adjustment against provision of IT support related services. The other grounds/sub-grounds raised in the appeal are not pressed. 4. The ld. Authorized Representative of the assessee submitted that in respect of provision of Software Development Services, the assessee is seeking exclusion of Thirdware Solutions Ltd.(in short 'Thirdwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware Development services. 6. Controverting the submissions advanced by ld. Departmental Representative, the ld. Authorized Representative of the assessee submitted that the Tribunal in various decisions including decision in assessee's own case has held that Thirdware being product company is functionally incomparable to company engaged in Software Development services. The ld. Authorized Representative of the assessee referred to page 545 of the Paper Book to contend that the product includes services. The ld. Authorized Representative of the assessee further pointed that decision rendered in the case of Steria (India) Ltd. (supra) is distinguishable, as in the said case the TPO has considered the geographical segment and not the segment at functional level. The ld. Authorized Representative of the assessee submitted that the TPO in the present case has considered entity level margin of Thirdware. The TPO followed similar approach in assessment year 2010-11, 2011-12 and 2013-14 for inclusion of Thirdware at entity level. The Tribunal by placing reliance on the decision rendered in the case of CIT vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No. 732 of 2014 decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment before the Tribunal in assessment year 2011-12 was that software development and software products are one and the same and cannot be construed as separate and distinct activity per se. The Co-ordinate Bench rejected the arguments advanced by the Revenue in support of inclusion of Thirdware in the list of comparables by holding as under: 9. With regard to exclusion of comparables i.e. Thirdware Solutions Ltd., Persistent Systems Ltd., Tata Elxsi Ltd. and Kals Information Systems Ltd. from the final set of comparables as directed by the ld. CIT(A) on the ground of functional dissimilarities, the ld. DR argued that anything related to automizing the operations in digital format tantamount to software development and accordingly, non-availability of break-up of revenue from software services and sale of software products does not affect comparability. We find that main crux of the argument of the ld. DR is that software development and sale of software products are both one and the same and cannot be construed as separate and distinct activity per se. We find that the ld. DR argued admitted the fact that there is no segmental break up of revenue in respect of sale of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware products which is different from the activity undertaken by the respondent assessee, namely, rendering of software service to its holding company. Further, the impugned order also records that no attempt was even made by the Revenue before it to bring on record any change in the nature of activities carried out by KALS Ltd. and Helios Matheson Ltd. in the subject assessment year, making them functionally comparable to the respondent assessee. In the aforesaid facts, the Tribunal rendered a finding of fact that KALS Ltd. and Helios Matheson Ltd. are not comparable with the respondent assessee. (c) Even before us, no submissions were advanced justifying the order of the Assessing Officer that the services rendered by KALS Ltd. and Helios Matheson Ltd. are comparable for the subject assessment year with that of the respondent assessee. (d) In the above view, as the findings of the Tribunal being one of the fact which has not been shown to be perverse, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 9.2. Respectfully following the aforesaid decision of Hon'ble Jurisdictional High Court, we hold that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable company ought to be adjusted for appropriate comparability analysis. The assessee has furnished calculations for adjusted margin before the TPO. The same are at page 437 and 442 of the Paper Book. It has been further pointed that in assessment year 2010-11, 2011-12 and 2013-14 the benefit of working capital adjustment has been allowed to the assessee by the Tribunal. We find that in assessment year 2010-11 the CIT(A) had allowed working capital adjustment on final set of comparables. The Revenue challenged the same before the Tribunal in ITA No. 344/Mum/2017(supra). The Coordinate Bench upheld the finding of CIT(A) in allowing working capital adjustment and rejected the ground raised by the Revenue. Similarly, in assessment year 2011-12 and 2013-14 the Tribunal allowed the benefit of working capital adjustment to the assessee following the order in assessment year 2010-11. No contrary material has been placed before us by the Revenue. Respectfully following the decision of Coordinate Bench in assessee's own case in the preceding assessment years and immediately succeeding assessment year, we direct the Assessing Officer to allow the benefit of working capital adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. Departmental Representative further referred to Annual Report of Excel for Financial Year 2011-12 at page 1257 of the Paper Book. The ld. Departmental Representative pointed that the said company has decided to diversify into Real Estate business in future after closure of IT and BPO business. The ld. Departmental Representative further pointed that in the financial statement for the year ended 31/03/2012, at page 1291 of the Paper Book the said company has shown revenue from information technology/BPO related services. Therefore, it is wrong to say that the BPO business of the assessee has shut down during the Financial Year 2011-12 relevant to assessment year 2012-13. The ld. Departmental Representative pointed that the Tribunal in assessment year 2013-14 has excluded Excel on the basis of turnover filter and not for the reasons raised by the assessee in the present assessment year. The ld. Departmental Representative in support of his submissions placed reliance on the decision of Bangalore Bench of Tribunal in the case of Zyme Solutions Pvt. Ltd. vs. ACIT in IT(TP) No. 1661/Bang/2015 for assessment year 2012-13 decided on 16/11/2018. The ld. Departmental Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected as functionally comparable to the assessee. In this regard, we find support from the ratio laid down by the Hon'ble High Court of Gujarat in Ld. CIT Vs. Allscripts India Pvt. Ltd. in Income Tax Appeal No. 258 of 2016 and Pune Bench of Tribunal in TIBCO Software India Pvt. Ltd. Vs. DCIT in ITA Nos. 276/PUN/2015 cross appeal in ITA No. 334/PUN/2015, relating to assessment year 2010-11, order dated 31.01.2017 and Qlogic India Pvt. Ltd. Vs. DCIT in ITA No. 227/PUN/2014, relating to assessment year 2009-10, order dated 21.10.2014. [Emphasised by us] In the case of Baxter India Pvt. Ltd. vs. ACIT (supra), the Tribunal directed to exclude Excel from the list of comparables inter-alia on account of, abnormal volatility in revenue and margins. It is settled legal position that a company having super normal profits or highly unstable margins should not be idly considered as good comparable. Thus, in view of the decisions referred above, we find merit in the contentions of the assessee and direct the Assessing Officer to exclude Excel from the list of comparables. Excel was excluded from list of comparables on account of abnormally fluctuating revenue. Similar vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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