TMI Blog2021 (11) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that the directions of the Tribunal in its earlier order has not been given effect to. TPO has admitted that depreciation cost of the comparable companies is lesser than the assessee (since deprecation policy followed by comparable companies is as per Companies Act, whereas the assessee was showing higher rate of depreciation based on some agreement. Hence, suitable depreciation adjustment ought to have been made by AO / TPO. Therefore, this issue is restored to the files of the AO / TPO. AO / TPO is directed to allow depreciation adjustment if they notice the rate of depreciation are different in the case of the assessee and the comparable cases. Therefore, ground 4 is allowed for statistical purposes. Negative Working Capital Adjustment - HELD THAT:- Admittedly in this case, the assessee is a captive service provider and it is operating on cost plus basis. Therefore, following the order of the Tribunal in the case of ACIT v. e4e Business Solutions India Private Limited [ 2020 (12) TMI 1255 - ITAT BANGALORE] , we hold that there should not be any negative working capital adjustment. It is ordered accordingly. Therefore, ground 7 is allowed. Deduction of Educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lobal Services (India) Private Limited in IT(TP)A No.185/Bang/2018 (order dated 28.09.2019). 3.2 The learned Departmental Representative supported the orders of the Income Tax Authorities. 3.3 We have heard rival submissions and perused the material on record. The assessee is an ITES company engaged in the business of providing business processing outsourcing to its AEs. The assessee is a captive service provider to its AEs. The Bangalore Bench of the Tribunal in the case of Indecomm Global Services (India) Pvt. Ltd. (supra) had excluded Infosys BPO Limited and TCS E-Serve Limited from the list of comparables. The Tribunal excluded Infosys BPO Limited, since the said company was functionally incompatible, on account of presence of intangibles and ownership of `brands . As regards TCS E-Serve Limited, the said company was excluded, since it engaged in high end KPO services and cannot be compared to the assessee, who is rendering a low end BPO service. The relevant finding of the Bangalore Bench of the Tribunal in the case of Indecomm Global Services (India) Private Limited (supra) for exclusion of Infosys BPO Limited and TCS E-Serve Limited, reads as follow:- 2. Infosys BP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management services in Sydney, Australia. Therefore, this company also failed the TPO's own filter of rejecting companies with peculiar circumstances. In view of the above i.e. functionally not comparable, presence of brand and extraordinary event that has taken place during the year on account of acquisition of Australian based company, we are of the considered opinion that Infosys BPO Ltd. should not be included in the list of comparables. We accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin. It was also brought to our notice that the Hon'ble Delhi High Court in ITA No.260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider. Respectfully following the same we direct this company to be excluded from the list of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides its services from various processing facilities, backed) a robust and scalable infrastructure network tailored to meet clients' needs. A detailed Business Continuity Plan has also been put in place to ensure the services are provided to the customers without any disruptions. Thus, this company is also stated to be a Knowledge Process Outsourcing and therefore for reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from the list of comparables.' Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion this company from the list of comparable . It has been observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. Respectfully following aforesaid decision, we direct Ld.TPO to exclude this company from the list of comparables. 3.4 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are different. Therefore we are of the view that let this matter be re-examined by the TPO / AO and if they notice that the rates of depreciation are different in the case of assessee and the comparables companies, the reasonable depreciation adjustment be made in order to determine the ALP for the international transactions. 4.4 From the above order of the Tribunal, it is clear if there is difference in depreciation in the case of assessee and the comparable cases, reasonable depreciation adjustment is to be made to determine the arm s length of the international transaction. On perusal of the TPO s order and the DRP s order, confirming the same, it is clear that the directions of the Tribunal in its earlier order has not been given effect to. The TPO has admitted that depreciation cost of the comparable companies is lesser than the assessee (since deprecation policy followed by comparable companies is as per Companies Act, whereas the assessee was showing higher rate of depreciation based on some agreement (see page 5 of the TPO s order). Hence, suitable depreciation adjustment ought to have been made by AO / TPO. Therefore, this issue is restored to the files of the AO / TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue in this segment is from AE. So the decision of Bangalore Bench of ITAT in the case of Lam Research India Private Limited (supra) is squarely applicable to its case. This ground of appeal of the appellant is allowed. 15. Revenue being aggrieved, has raised this issue before the Tribunal. The learned DR had submitted that the financials of the assessee had mentioned borrowing during the year and therefore no working capital adjustment should be allowed. In this context, the learned DR referred to the order of the Tribunal in the case of ACIT vs. e4e Business Solutions India Pvt. Ltd. in IT(TPA) No.2900/Bang/2018 (order dated 08.12. 2020).The learned AR, on the other hand, submitted that the assessee does not have any borrowing / loan for working capital and is a captive service provider providing software development services only to its AEs. It was submitted that the long term borrowings of Rs.99,74,434 that is mentioned in the notes of the financial statement is to secure hypothecation of vehicles acquired on financial lease. 16. We have heard rival submissions and perused the material on record. The CIT(A) has given a categorical finding that the assessee is a capti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional ground raised does not require investigation of new facts and it is purely legal ground. Therefore, placing reliance on the judgment of the Hon ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional ground and proceed to dispose of the same on merits. 6.1 We have heard rival submissions and perused the material on record. On identical facts, the Bangalore Bench of the Tribunal in the case of DCIT v. GE BE Private Limited in IT(TP)A No.251/Bang/2016 (order dated 27.11.2020) had held that educational cess is to be allowed as a deduction. The relevant finding of the Bangalore Bench of the Tribunal reads as follow: 17. On merits, Ld.AR submitted that, education cess is not tax and hence is not disallowable. We also rely on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. v. Jt. CIT (supra), which after taking into account aforementioned CBDT circular held that section 40(a)(ii) applies only to taxes and not to education cess. Relevant extract of the decision is reproduced for ease of reference:- 13. On the third issue in appeal no. 52/2018, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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