Income Tax Appellate Tribunal - Chennai
Symantec Software And Services India ... vs Dcit, Corporate Circle 6(2),, Chennai on 13 June, 2025
आयकर अपीलीय अिधकरण, 'डी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी अिमताभ शु ा, लेखा सद के सम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER
IT (TP) A No.77/Chny/2018
िनधा रणवष /Assessment Year: 2014-15
M/s. Symantec Software & Services v. The DCIT,
India Pvt. Ltd., Corporate Circle-6(2),
1/124, Shivaji Gardens, Chennai.
DLF Info City, Block No.1C,
5th Floor, Moonlight Stop,
Nandambakkam,
Chennai-600 089.
[PAN: AAKCS 5422 K]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.Nageshwara Rao,
Advocate (virtual)
यथ क ओर से /Respondent by : Mr.A. Sasikumar, CIT
सुनवाईक तारीख/Date of Hearing : 07.04.2025
घोषणाक तारीख /Date of Pronouncement : 13.06.2025
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This appeal preferred by the assessee is against the final assessment order dated 27.09.2018 passed by the Assistant Commissioner of Income Tax, Central Circle-6(2), Chennai, u/s.143(3) r.w.s.92CA(4) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') pursuant to the directions issued by the Dispute IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 2 ::
Resolution Panel (hereinafter referred to as 'DRP'), Bangalore, dated 31.08.2018 u/s.144C(5) of the Act.
2. The brief facts of the case are that the assessee is engaged in the business ess of rendering software development services [in in short "SWD services"] and Information Technology enabled Services [in [in short 'ITES'].
' During the relevant AY 2014-15, 2014 the assessee rendered SWD services and ITeS to its Non-Resident, ent, Associated Enterprise (AE) which were reported as international transactions transaction in terms of Section 92 of the Act. The assessee had drawn up the internal segmental accounts of (i) SWD services segment and (ii) ITES segment and applied TNMM as Most Appropriate riate Method (MAM) to both these segments and PLI was taken to be OP/OC. Subsequently, the case was selected for scrutiny and the AO referred the matters to the Transfer Pricing Officer (TPO) for determination of Arm's Length Price (ALP) in relation to international int transactions with AE.. The TPO is noted to have perused the segmental information of (i) SWD services segment and (ii) ITES segment, segment whose PLI was computed by the assessee at 12.86% & 11.73% respectively. The TPO observed ed that the assessee company company had undertaken an economic analysis and selected 13 (thirteen) comparables for SWD services segment whose ALP PLI was 10.56% and seven (7) comparables for ITES Segment,, whose ALP PLI was %.
% Since the PLI(s) of the assessee was IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 3 ::
higher than the comparables for both the segments, the international transactions were claimed to be at arm's length.
3. Though the TPO accepted the internal segmentation of the financial statements, application of TNMM as MAM and selection of OP/OC as the PLI; the TPO rejected the economic analysis set out in TP study of the assessee. The TPO identified his own set of eleven (11) comparables for the SWD services segment, which are as follows:-
follows:
Sl.No. Name of the comparable Margin
(OP/OC)
1 CG-VAK
VAK Software & Exports Ltd. (in 9.27
millions)
2 Cigniti Technologies Limited 27.62
3 Mindtree Ltd. (in millions) 21.64
4 Persistent Systems Ltd. (in millions) 22.99
5 R S Software (India) Ltd. (in lakhs) 24.11
6 Tech Mahindra Ltd. (Seg) (in Crores) 23.01
7 Thirdware Solution Ltd. (in lakhs) 44.68
8 Infosys Ltd. 36.13
9 Larsen & Toubro Infotech Ltd. 24.71
10 SQS India B F S I Ltd. 22.25
11 Tata Elxsi Limited (Segmental) 18.94
Average 25.03
4. The TPO accordingly worked out the arm's length PLI for SWD services segment at 25.03% which was higher than the PLI of the assessee and accordingly made TP adjustment of Rs.14,40,19,430/-.
Rs.14,40,19,430/ The TPO in the ITES segment identified the following set of seven (7) comparables and computed the arm's length PLI at 19.10% and consequently made TP adjustment of Rs.5,25,43,650/-.
Rs.5,25,43,650/ IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 4 ::
Sl.No. Name of the comparable Margin (OP/OC) (%) 1 Infosys BPO Ltd. 35.71 2 Microgenetic Systems Ltd. 18.06 3 Microland Ltd. 20.07 4 Jindal Intellicom Ltd. 7.89 5 BNR Udyog Ltd. (Seg) 25.08 6 Crossdomain Solutions Pvt 21.06 Ltd 7 ACE BPO Services Private 5.85 Limited Average 19.10
5. Pursuant to the above order passed u/s 92CA(3) of the Act, the AO framed the draft assessment order u/s 144C(1) of the Act against which the assessee filed objections before the DRP. It is noted that the DRP only directed exclusion of one (1) comparable viz., M/s.Tech Mahindra Ltd.
(segment), identified by the TPO, from the SWD services segment and corrected the margin computation of one (1) comparable in the ITES segment. Consequently, in the final assessment, the upward adjustment for SWD services segment and ITES segment worked out to Rs.14,64,33,899/- & Rs.5,08,60,621/-
Rs.5,08,60,621/ respectively. Aggrieved by b this final assessment order, the assessee has filed the present appeal before us.
6. At the time of hearing, the Ld. AR restricted his arguments to effective grounds of appeal only and supported the arguments with chart and paper book. The Ld. AR submitted submitt that,, five (5)out of the ten (10) IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 5 ::
comparables are to be excluded in SWD services segment viz., (i) Infosys Ltd., (ii) Persistent Systems Ltd., (iii) Thirdware Solutions Ltd., (iv) Larsen & Toubro Infotech Ltd., (v) SQS India BFSI Ltd., and three (3) comparables namely (i) CAT Technologies Ltd., (ii) Lucid Software Ltd.,
(iii) Akshay Software Technologies Ltd. are to be included for determining the ALP.. Further, he contended that, three (3) out of seven (7) comparables were to be excluded in the ITES segment segment and two (2) comparables of the assessee were to be included. The Ld. AR further claimed risk and working capital adjustment, which was denied by the lower authorities. The Ld. CIT, DR, on the other hand, supported the order(s) of the lower authorities.
7. We heard the rival contentions and perused the material on record.
We first take up the issue concerning exclusion/ inclusion of comparables in the SWD services segment. The Ld. Counsel for the assessee brought to our notice inter alia,, that similar cases cases as that of assessee, who were SWD services provider, came up before the coordinate bench of this Tribunal at Bangalore for the same AY 2014-15, 2014 15, in whose cases also the Revenue had chosen similar/same set of comparables as that of the assessee for the very ery same assessment year and therefore according to him, the ratio decidendi laid down in these decisions ought to be followed unless any change in facts to distinguish the case of the assessee, is IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 6 ::
pointed out by the Revenue. The relevant decisions relied upon by the Ld. AR were as follows:-
- EMC Software and Services Services India Pvt Ltd vs. JCIT [IT(TP)A [ 3375/Bang/2018] ang/2018] (Pages 279 - 311 of PB)
- Microsoft Research Lab India Pvt. Ltd. vs. DCIT [ITA 3131/Bang/2018) /2018) [Page 214 to 235 of PB]
- Citrix R&D vs. DCIT [IT(TP)A [ No. 3134/Bang/2014) /2014) [Page 236 to 256 of PB]
8. Having gone through the material placed before us and the above decisions (supra), we take up the five (5) comparables sought to be excluded by the assessee. It is noted that, four (4) comparables i.e., (i) Infosys Ltd. (ii) Persistent Systems Limited, (iii) L & T Infotech Limited and (iv) Thirdware Solutions Ltd. were examined and found to be functionally dissimilar to a SWD provider [ like the assessee, in the present case], by this Tribunal in the case of EMC Software and Services India Pvt. Ltd.
Ltd v. JCIT (supra) in AY 2014-15.
15. In respect of M/s Infosys Limited, it was noted by the Tribunal that, this company had significant intangibles and huge revenues from software products and therefore cannot be regarded regarded as a SWD services provider. The relevant findings taken note of by us, is as follows:-
follows:
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 7 ::
"..(1) Infosys Limited: This company is functionally dissimilar and provides end to and business solutions like business consulting technology engineering and outsourcing services and no segmental details in respect of services are available and made investments and products to establish as a tradable IPO owner. Further the comparable owns significant brand value products and focus on brand building and incurred expenditure on R & D. The company owns 7 edge products/platforms and six other product based solutions. The company leverages erages on its premium banking solution and during the year the company merged with its wholly owned subsidiary Infosys Consulting India Limited. We found that the company was excluded from the final list of comparables in assessee's own case for the Assessment Assess Year 2011-1212 by the DRP and revenue has accepted. The Learned Authorised Representative supported his arguments relying on the decisions in the case of CIT Vs. Agnity (India) Technologies Pvt. Ltd. (2013); CGI Systems and Management Ltd. Vs. ACIT (2015) (2015) 94 taxman.com The learned Authorised Representative also substantiated that for the Assessment Year 2014-15, 2014 the co-ordinate ordinate Bench of the Tribunal in the case of LG Soft India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 2014 15 D128.5.2019. We support our views relying on the LG Soft India Pvt. Ltd. Vs. DCIT (supra) where the Tribunal has observed at paras 6 and 6.1 as under:
6. We notice that the co-ordinate co ordinate bench bas excluded Mis. Infosys Ltd in A.Y 2008-09 09 by following the decision rendered by another co-ordinate co bench in the case of 3DPLM Software Solutions Ltd (IT(TP)A No. 1303/Bang/2012 dated 28.11.2013, wherein the decision, rendered in the case of Triology E Business Software India P Link (ITA No. 1054/Bang/2011) was followed followed and it was held that M/s. Infosys Technologies Lad is not functionally comparable since it owns significant intangible and has huge revenues from software products. It was observed that the breakup of revenue from software services and software product uct is not available.
6.1 It was stated that there is no change in facts. Accordingly, following the decision rendered in the assessee's own case in A.Y 2008-09, 2008 we direct exclusion of Ms. Infosys Ltd."
We found that the Infosys Ltd. has significant intangibles intangibles and huge revenues from software products and was considered by the co-ordinate co Bench of the Tribunal for exclusion in the Assessment Year 2014-15.
2014Accordingly, we direct the TP exclude the Infosys Ltd. from the final list of comparables for determination determin of ALP."
9. We further find that in the same decision rendered in the case of EMC Software and Services India Pvt.
Pvt Ltd. v. JCIT (supra), (supra) M/s Persistent Systems Limited and M/s L & T Infotech Limited were found to be software product companies whose segmental egmental information on SWD IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 8 ::
services was not available and were therefore excluded from the list of comparables. The findings rendered by the Tribunal, in relation thereto, are noted to be as follows:-
follows:
"(ii) L&T Infotech Limited: The company has a margin off 24.61% and has high brand value and is a market leader, high presence and the intangible income in proprietary products. Significant expenditure in foreign currency to the extent of 57.13%. During the year the product engineering business service of the company was transferred to its subsidiary. The company segments are divided into service cluster, industrial cluster and telecom business. As per the Annual Report of the company, the company has a significant capital work-in-progress work progress and the company has developmental developmental products. The comparable was excluded from the final list of comparable in assessee's own case for the Assessment Year 2011-12 2011 12 by the DRP and further the comparable company was excluded by the co-ordinate co ordinate Bench of Delhi Tribunal in the case of Pitney Bowes Software India Pvt. Ltd. Vs. ACIT 101 Tasman.com
350. The learned Authorized Representative also relied on CGI Information Systems & Management Consultants (P) Ltd. Vs. ACTT (2018) 94 man.com 97 and DCTT Vs. Taman India Pvt. L.sd. (2016) 74 Taxmann.com axmann.com 88 (Del). We found that the co-ordinate co ordinate Bench of Tribunal in M.P. No.95/Bang/2019 IT(TP)A No.3122/Bang/2018 for the Assessment Year 2014-15 2014 15 has dealt on the sue at page 2 para 4 as under:
"4. We heard Ld.DR and perused the record. We find merit mer in the miscellaneous petition filed by the assessee. Accordingly following paragraph is inserted after paragraph 10 in the impugned order of the Tribunal, which will adjudicate the issue relating to "L&T Infotech Lid":
"10A The assessee has sought exclusion exclusion of M/s.L&T Infotech Ltd on the ground that there were extraordinary events during the year, it possesses brand and intangibles, it has not provided segmental information and it has got sub-contracting sub contracting expenses. The Ld A.R submitted that the above said company has been excluded by the co-co ordinate bench in the case of Metric Stream Infotech P Ltd., (IT(TP)A No.1418 & 2735/Bang/2017) relating to AY 2013-14 2013 14 and also in the case of Electronics for Imaging India P Ltd., (IT(TP)A No.1506/Bang/2016 relating to AY 2011-12). 12). The Ld.AR submitted that there is no change in facts in this year also and accordingly prayed for exclusion of the above said company.
10A.1 We heard Ld D.R and perused the record. We notice that M/s.L&T Infotech Ltd has been excluded by the co-ordinate ordinate bench in the case of Metric Stream Infotech P Lad (supra) for AY 2013-14 2013 and also in the case of Electronics for Imaging India P Ltd (supra) for AY 2011-12.
12. The Ld A.R submits that there is no change in facts IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 9 ::
prevailing in the current year vis-a-vis vis vis the years considered by the co-ordinate ordinate benches in the above said cases. Accordingly. following the above said decisions, we direct exclusion of M/s.L & T Infotech Ltd.".
We considering the functional dissimilarity and judicial decisions and various facts which are not similar to the assessee's functional profile, accordingly direct the TPO to exclude M/s. L. & T Infotech Limited from the final list of comparable in determining the ALP.
(iii) Persistent Systems Ltd.: The company is functionally different differ as it is engaged in rendering IT services and in the development of software products without there being support segmental information and engaged in IP led solutions and undertakes significant R & D activities, owns IP. During the year the company made made acquisitions. The company has made significant investment in IP and their solutions and has a dedicated team for Research and IP development. The learned Authorized Representative relied on decision of Tribunal in the case of CGI Information & Management Management Systems Pvt. Ltd. Vs. ACIT 94 Taxman.com 97 and PCIT Vs. Saxo India Pvt. Ltd. 74 taxmann.com 88 (Delhi). We relied on the decision of CGI Information Systems & Management Consultants Pvt. Lltd. (supra) at paras 28 to 30 as under:
28. The learned counsel for the Assessee submitted before us that the comparability of the 3 companies out of the aforesaid 4 companies which the Assessee seeks to exclude from the list of comparable companies chosen by the TPO viz, Infosys Ltd., Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd., were considered by the ITAT Delhi Bench in the case of Agilis Information Technologies India (P.) Ltd. v. Asstt. CIT [2018] 89 taxmann.com 440 (Delhi-Trib) (Delhi for the same AY 2012-13, 2012 13, is this regard it was submitted that the functional al profile of the Assessee is same as that of the assessee in the case of Agilis Information Technologies India (P) Ltd., (supra), is identical much as the said company was also involved in providing SWD services to its AE and the TPO had chosen 16 comparable compara companies out of which 6 companies chosen by the TPO in the case of the assessee for the purpose of comparability were the same. His submission was that the decision rendered by the Tribunal in the case of Agilis Information Technologies India (P) Ltd., Ltd., (supra) would be equally applicable to the assessee in the present case also. The learned DR. submitted that the DRP in its directions has merely accepted with the reasoning of the IPO and therefore the issue of exclusion of these companies should be directed directed to be examined afresh by the DRP.
29. We have considered the rival submissions. In the case of Agilis Information Technologies India (P) Ltd., (supra), this Tribunal considered the comparability of the 3 companies which the assessee seeks to exclude from the list of comparable companies chosen by the TPO. The functional profile of me assessee and that of the assessee in the case of Agilis Information Technologies India (P) Ltd., (supra) is identical inasmuch as the said company was also involved in providing oviding SWD services to its AE and the TPO had chosen some IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 10 ::
comparable companies which were also chosen by the TPO in the case of assessee for the purpose of comparability. In the aforesaid decision, the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows:
(a) Infosys Ltd was excluded from the list of comparable companies by following the decision of the Hon'ble Delhi High Court in the case of CIT v Agnity India Technologies (P) Ltd (2013) 36 taxmann.com 289/219.
219. Taxman 20. (De) The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal's order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets asse and therefore not comparable with a software development service provider such as the Assessee in that case.
(b) Larsent & Tourbro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. v. Asstt. CIT (20161. 67 taxmann.com 155 (Delhi-Th.
(Delhi Th. The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal's order. The Tribunal held that L&T Infotech Ltd., was a software product company and segmental information mation on SWD services was not available. The Tribunal also noticed that the appeal filed by the revenue against the tribunal's order was dismissed by the Hon'ble Delhi High Court in ITA No 682/2016.
(c) Persistent Systems Ltd., was excluded from the list of comparable companies on the ground that this company was a software product company and segmental information on SWD services was not available. The Tribunal in coming to the above conclusion referred to the decision rendered by ITAT Delhi Bench in the case of Cash Edge India (P.) Lid. v. ITO ITA No.64/Del/2015 order dated 23.9.2015 and the decision of Hon'ble Delhi High Court in the case of Saxo India Pvt. Ltd. (supra). The findings in this regard are contained in Paragraphs 4.14 to 4.16 of its order.
30.
0. Respectfully following the decision of the Tribunal we hold that the aforesaid 3 companies be excluded from the final list of comparable companies for the purpose of arriving at the arithmetic mean of comparable companies for the purpose of comparison with w the profit margins. In this regard we are also of the view that the plea of the learned DR for a remand of the issue to the DRP on the ground that the DRP has not given any reasons in its directions cannot be accepted. The DRP has endorsed the view of the TPO in its directions and therefore the reasons given by the TPO should be regarded as the conclusions of the DRP.
We rely on judicial decisions and facts in respect of comparable Persistent Systems Ltd. and direct the Assessing Officer to exclude from the final list of comparable for determination of ALP."
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 11 ::
10. Likewise, we note that the Tribunal in the case of EMC Software & Services India Pvt. Ltd. (supra), (supra), also held M/s.Thirdware Sales Ltd., to be functionally dissimilar and held it to be non comparable and non-compara consequently directed exclusion of this comparable by observing as under:
"(iv) Thirdware Solutions Ltd.
Ltd. the company is functionally dissimilar and is engaged in rendering software development implementation and support services and engaged in the development of software products and earns revenue from sale of user licenses and purchase stock in trade during the year and has intangibles.
Further the margins of the company fluctuate year on year basis due to different revenue recognition model which the company has adopted. The above comparable was excluded in assessee's own case on functional dissimilarity in the Assessment Years 2005-06 2005 06 and 2007-08 2007 and learned Authorized Representative also relied on Lime Labs (India) Pvt. Ltd. Vs. ITO 101 Taxman.com Taxman.com 201 (Delhi Trib.). We found the co-co ordinate Bench of the Tribunal in the case of LG Software India Pvt. Ltd. Vs. DCIT in IT(TP)A No.3122/Bang/2018 dt.28.05.2019 for the Assessment Year 2014-15 2014 15 has excluded the comparable as observed at paras 8 & 8.1 at page p 4 as under:
"8. We also notice that in A.Y 2008-09, 2008 the co-ordinate ordinate bench has excluded M/s.Thirdware Solutions Ltd also by following the decision rendered in the case of 3DPLM Software Solutions Ltd (supra), where in it was held that M/s.Thirdware Solutions Solutions Ltd. is engaged in product development and earns revenue from sale of licenses and subscription Further, the segmental details were not available.
8.1 It was stated that there is no change in facts. Accordingly. following the decision rendered in the assessee's own case in A.Y 2008-09, 2008 we direct exclusion of M/s. Thirdware Solutions Ltd."
The comparable Thirdware Solutions Ltd., has to be excluded as it is predominant in activity and segmental details are not available. Accordingly we direct the TPO/AO TPO/AO to exclude this comparable from the list of comparables for determining the ALP."
11. Following the above decision (supra) and having regard to the fact that the assessee is also providing similar SWD services and there being no change of fact pointed out by the Ld. CIT, DR, we find merit in the IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 12 ::
contention of the Ld. AR of the assessee and direct the TPO to exclude the four (4) comparables i.e. (i) Infosys Ltd., (ii) Persistent Systems Ltd.,(iii) Ltd.
Thirdware Solutions Ltd., & (iv) L&T Infotech Ltd.,from Ltd.,from the final list of comparable in determining the ALP.
ALP
12. The last comparable sought to be excluded excluded by the assessee is M/s.
SQS India BFSI Ltd. It is noted that, the assessee has not objected for exclusion of this comparable before the TPO as well as before the DRP, but has now raised this claim by filing an additional ground before us.
According g to the assessee, this comparable fails related party transaction (RPT) filter of 25% since the RPT to revenue from operations works out to be 33.168 %. The Ld. AR took us through the relevant Page No.38 & 55 of its Annual Report, which was placed at Page 718 of the Paper Book. He accordingly urged us to exclude this comparable as well.
13. Per contra, the Ld. CIT, DR vehemently objected to the admission of this additional ground raised by the assessee. According to him, when the assessee had not disputed this comparable before the Ld. DRP & the TPO, then this objection cannot be raised at this stage. On merits, he further submitted that, the assessee was a 100% captive service provider for its foreign AE and therefore the RPT filter had no relevance.
14. We first take up the legal plea raised by the Revenue for non-
non admissibility of this claim raised by the assessee. It is noted that similar IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 13 ::
objection as raised by Ld. CIT, DR (supra) was raised by the Revenue in the case of M/s. Citrix R&D India Pvt. Ltd. v.
v. DCIT (supra), (supra) wherein also, as in the present case, the assessee did not object to the inclusion/exclusion of comparable before the DRP but agitated the same before this Tribunal. The Tribunal is noted to have repelled this objection raised by the Ld. DR,, by holding as under:
"12.
12. As far as CG Vak Software & Exports Ltd. is concerned, the TPO excluded the aforesaid company for the reason that this company was engaged in both SWD services and ITeS and no segmental details were available. Before the DRP, the assessee did not challenge the exclusion of this company pany from the list of comparable companies by the TPO. However, before the Tribunal, the assessee has sought inclusion of this company in the final list of comparables on the ground that segmental details between SWD services and ITeS is available in the public domain and 98.12% of income of this company is from rendering SWD services. In this regard, our attention was drawn to PB page 1646 of the annual report compendium, which shows that total revenue from operation is Rs.8.95 crores out of which 8.78 crores crores is revenue from software services. It is the plea of assessee that for AY 2013-14, 2013 14, this company was regarded as a comparable company by the TPO himself.
13. We have given careful consideration to the submission made by the ld. counsel for the assessee assessee and are of the view that the issue of comparability of this company needs to be looked into afresh by the TPO, in the light of facts brought to our notice by the ld. counsel for the assessee. The fact that the assessee did not object to the exclusion exclus of this company by the TPO before the DRP cannot be the basis, not to consider the claim of assessee before the Tribunal. We derive support for the above conclusion from the decision of Special Bench Chandigarh in DCIT Vs. Quark Systems Pvt. Ltd. 38 SOT 307 (SB)(Chandigarh) wherein it was held that the Revenue authorities, including TPO were required to apply statutory provisions and consider for purposes of comparison functions, assets and risks (turnover), profit and technology employed by the tested tested party and other enterprises taken as comparable.. Statutory duty is cast on them to undertake above exercise. If this has not been, the Tribunal as a fact-finding fact finding body has to take into account all the relevant material and determine the question as per the statutory regulations. We therefore remand the question of inclusion of this company as a comparable company to the TPO for fresh consideration in the facts brought to our notice referred to above and after affording due opportunity of being heard to the assessee."assessee. [emphasis given] IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 14 ::
15. In view of the above, the preliminary objection raised by the Revenue to the admissibility of the contention seeking exclusion of M/s.SQS SQS India BFSI Ltd from the final list of comparables, is rejected. On merits, it was brought to our notice that, the Ld. DRP in their decision rendered in the case of M/s. Citrix R&D India Pvt. Ltd. (supra) had excluded M/s.SQS SQS India BFSI Ltd from the final list of comparables, for failing the RPT filter. However, in the fitness of the the matters, we deem it fit and appropriate to remit this matter back to the file of the TPO/AO for de novo consideration of the claim of the taxpayer seeking exclusion of M/s.
SQS India BFSI Ltd, after giving an opportunity of being heard. We order accordingly.
16. We now come to the three (3) comparables (i) M/s.CAT Tec Technologies, (ii) M/s.Lucid Software Ltd., & (iii) Akshay Software Technologies Ltd., which are sought to be included by the assessee.
16.1 M/s.CAT Technologies - The TPO was of the view that this company is engaged in medical transcriptions, etc., and no segmental details are available, and therefore he didn't include this company as a comparable. The finding of the TPO was confirmed by Ld. DRP which held that the activity of medical transcription transcription cannot be characterized as software development and also this comparable fails the persistent-
persistent operation loss filter. To this, the Ld. AR took us through the financials of IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 15 ::
M/s.CAT Technologies [Page No.1152 of the PB-2] PB 2] to show that it was not engaged aged in any medical transcription activity during the year under consideration [AY 2014-15].
2014 15]. He also showed that this company had reported profit in AY 2012-13 2012 13 and therefore, according to him, this company cannot be classified as a persistent loss-making loss making company.
c He referred the decision of the Hon'ble Bombay High Court in the case of CIT v. Goldman Sachs (India) Securities Pvt. Ltd., [ITA No.2222 of 2013] wherein the Hon'ble High Court held that a company cannot be termed as a persistent loss making, if it has earned operating profit in one out of previous three years. Per contra, the Ld. CIT, DR supported the action of the TPO/DRP and doesn't want us to interfere.
16.2 Having gone through the submissions put forth by the assessee and the orders of the lower lower authorities, we note that, this company had reported profit in one of the preceding three years i.e. AY 2012-13, 2012 as noted above, and therefore, following the decision of Hon'ble Bombay High Court in the case of Goldman Sachs (India) Securities Pvt. Ltd., (supra),, we agree with the assessee that this company cannot be excluded by applying the persistent loss-making loss making filter. Further, perusal of their financials for the relevant year reveals that, this company was rendering SWD services and hence, is seen to be functionally comparable.
It was also brought to our notice that, this company was accepted as IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 16 ::
functionally comparable by the Ld. DRP in the preceding AY 2013-14.
2013 As there is no change in the functions and business profile of M/s.CAT Technologies during the year, for the reasons discussed in the foregoing, we direct inclusion of this company as comparable.
16.3 M/s.Lucid Software Ltd - This company was rejected by the lower authorities by applying the persistent loss-making loss making filter. The Ld. DRP had also observed served that this company derives income from service and products and therefore, was not functionally similar. It was brought to our notice that, this company had reported profit in the AY 2012-13.2012
Our attention was drawn to Page No.778 of the PB which showed sho that this company had earned operating profit of Rs.51,20,424/-
Rs.51,20,424/ and book profit of Rs.41,16,808/- in AY 2012-13.
2012 13. Therefore, as the company had reported profit in one of the preceding three years, following the decision of the Hon'ble Bombay High Court in the case of Goldman Sachs (India) Securities Pvt. Ltd., (supra) we hold that this company cannot be rejected on the 'persistent loss-making' loss filter.
16.4 On the functional comparability, we note that the Ld. DRP in assessee's own case for AY 2013-14 2013 14 had accepted this company as functionally comparable even though rejected by TPO. It was also brought to our notice that the Bangalore Bench of this Tribunal in the case of M/s.
Microsoft Research Lab India Pvt. Ltd. [IT(TP)A No. IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 17 ::
3131/Bang/2018] dated 05.02.2020 for AY 2014-15 15 in the context of assessee rendering SWD services had held this company as comparable by observing as under:--
"(v) Lucid Software Limited, Limited has a margin of (-)) 0.57% and the turnover is Rs.3.60 Crores. It was rejected on the ground that it is engaged in the business of software development and rendering software services to the global non-destructive non destructive testing and material sciences industry and further the company has incurred losses for the previous year ending March, 2013 and March, 2014. The Ld.AR submit that the comparable is functionally similar and is engaged in the business of software development and passes all the filters, and whereas persistent ersistent loss filters has been incorrectly applied. The learned Authorized Representative relied on the decision of Pune Bench Tribunal Yazaki India Pvt Ltd Vs DCit in ITA No.621/Pune/2014 Dt.11.7.2019 at paras 21 to 23 which is read as under:
"21. The Hon'ble n'ble jurisdictional High Court in CIT Vs. Goldman Sachs (India) Securities (P) Ltd. (2016) 290 CTR 236 (Bom.) considered a similar issue of persistent loss making companies. In that case, the TPO excluded Capital Trust Ltd. on the ground of persistent loss los making company. The Tribunal included this company by noticing that it was not a persistent loss making company as for the A.Y. 2005-06 06 it made profit although it was loss for subsequent two years, namely, A.Y. 2006-07 2006 and 2007-08.
08. Considering the factual factua position obtaining in the instant case, it is seen that though FCI Technology Services Ltd. suffered loss for the A.Y. 2008-09 2008 09 and the year under consideration but, in fact, there was profit for the AY. 2007-08 2007 at 5.08%. As this company earned profit of 5.08% for the A.Y. 2007-08, 2007 it ceases to be a persistent loss making company in so far as the A.Y. 2009-10 10 is concerned, since one of the three years is in profit though the other two years are in loss.
22. The Id. DR invited our attention towards the direction direction given by the DRP on page 12 in which it has returned a categorical finding that FCI Technology Services Ltd. started manufacturing connectors during the A.Y. 2008-09 2008 09 and there was no manufacturing of connectors during the A.Y. 2007-08, 2007 08, for which the assessee is claiming that this company has positive PLI.
23. We have gone through the Annual report of this company relevant for the A.Yrs. 2009-10 2009 and 2008-09.
09. Page 467 of the paper book for the assessment year under consideration gives details of stock, production and sales for the year ending 31-1231 12-2007 which has opening stock of connectors as well. Similar is the position for the preceding year as well, which depicts that there was opening stock of connectors. In that view of the matter, it becomes evident evid that this company was already into manufacturing of connectors, which IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 18 ::
product has been considered as similar by the DRP. Ex consequenti, the relevant contrary finding recorded by the DRP about that company not engaged in manufacturing of connectors during dur the A.Y. 2007-08 08 is, therefore, not correct. As FCI Technology Services Ltd. is not a persistent loss making company and further the functional similarity has not been disputed by the TPO, we order to include this company in the list of comparables."
Wee found this comparable was included by the Pune Bench of the Tribunal for the Assessment Year 2009-10.
2009 10. whereas in the present case, the Assessment Year is 2014-15 2014 15 and also the observations of the TPO that it is a loss making company for the year ending March, March, 2013 and March, 2014. Considering the functionality and precedent losses and the decision of the co-ordinate co ordinate Bench of the Tribunal, we restore this comparable to the file of TPO to examine and verify the functional profile for inclusion in determination determinat of ALP."
16.5 Since the Revenue was unable to point out any distinguishable facts and particularly because the Ld. DRP had also included this comparable in the final list for AY 2013-14, 2013 14, we direct inclusion of this company as a comparable.
16.6 M/s.Akshay hay Software Technologies Ltd. - According to the TPO, based on website of this company, it is functionally different. Though the DRP did not dispute the functional comparability but rejected this company on the ground that the revenue model of this company compan is different as foreign branch expenditure is 85%. The Ld. AR took us through the Annual report of M/s.Akshay M/s Akshay Software Technologies for FY 2013-14, 14, which shows the break-up break up of revenue generated by it from rendering software development services and selling selling ERP products and it is observed that 98.55% of its revenue is generated from software development services and only 1.19% is from selling ERP products [Refer note 19 on page 1054, 1056 0f PB-2].
PB 2]. The Ld. AR has rightly pointed out IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 19 ::
that, neither TPO norr DRP had applied a filter to reject the companies having substantial branch expenses. Accordingly, the reasoning given by DRP to reject this comparable is found to be untenable. The Ld.AR further brought to our notice that Bangalore Tribunal in the case of o M/s.
Microsoft Research Lab India Pvt. Ltd. (supra) and in the case of M/s. Verizon Data Services India Pvt. Ltd. ( (IT(TP)A No.56/Chny/2018)for for AY 2014-15has 2014 has directed inclusion of M/s. Akshay Software Technologies Ltd in the same SWD segment on similar facts fa and circumstances as involved in the present case. The relevant findings rendered in the case of M/s. Microsoft Research Lab India Pvt. Ltd., is noted as under:
"(i)
(i) Akshay Software Technologies Ltd., the company's margin is 1.81% and was rejected by the the DRP as a foreign brand expenditure is 85% of total cost. Whereas RPT is 3.49% of total sales and Ld.AR referred to page 1705 and 1714 of paper book. Further the company was rejected by the TPO on the RPT filter and the observations are incorrect, The company mpany is functionally similar and is engaged in providing Software Development Services including procurement, implementation and maintenance of ERP Products and also services in India and overseas which does not have impact on functional operations. WhereasWhere in assessee own case for the Assessment Year 2016-17 2016 17 it was accepted as comparable. Accordingly, considering the functional profile, and it was accepted by the Revenue in subsequent Asst Years, we direct the TPO to include the comparable company in the final list for determination of ALP."
16.7 We also gainfully refer to the following observations made by this Tribunal in the case of M/s. Verizon Data Services India Pvt. Ltd.
(supra) while dealing with the comparable M/s. Akshay Software Technologies Ltd., which is as under:
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 20 ::
"8.1 8.1 The Ld. TPO excluded this entity on the ground that this entity was functionally dissimilar as it was engaged in product development. The Ld. DRP confirmed the same against which the assessee is in further appeal before us.
8.2 The Ld. AR has submitted submitted that the inference of Ld. TPO is erroneous since the extract made from annual report of this entity are not with respect to the assessee but with respect to assessee's wholly owned subsidiary vis. Akshay Software International Inc. The Ld. AR submitted that this entity is functionally similar since it is engaged in providing professional services, procurement, installation, implementation, support and maintenance of ERP products and services in India and overseas. The revenue from software services is more more than 75% of total revenues which is one of the filter applied by Ld. TPO. The Ld. AR submitted that this entity has been accepted by Bangalore Tribunal in the decision of Mercedes-Benz Mercedes Benz Research & Development India (P.) Ltd. (95 Taxmann.Com 134) as well as Kolkata Tribunal in the decision of Labvantage Solution Pvt. Ltd. (ITA No.1051/Kol/2015 & ors. dated 19.10.2016).
The Ld. CIT-DRDR opposed inclusion of the same on the ground that it was a low-profile profile company carrying out functionally different activities activitie and its turnover could not be compared with assessee's turnover.
8.3 We find that the observation made by Ld. TPO, as rightly pointed out by Ld. AR, are erroneous. The observations have been made in the Annual Report not with respect to the assessee but but with respect to another entity. This entity meets filters applied by Ld. TPO while carrying out comparable analysis. In the cited decision of Bangalore Tribunal in Mercedes-Benz Mercedes Benz Research & Development India (P.) Ltd. (supra), this entity has been accepted accepted to be a comparable entity.
Therefore, we direct Ld. TPO to accept this entity as comparable entity. The corresponding grounds raised by by the assessee stand allowed."
16.8 In view of the above, we direct the TPO/AO to include this company in the list of comparables mparables for computing the ALP.
17. We now come to the dispute relating to exclusion/ inclusion of comparables in the ITES segment. At the time of hearing, the assessee sought exclusion of three (3) comparables viz., (i) M/s. Infosys BPO Ltd.,
(ii) M/s. Cross ross domain Solutions Pvt. Ltd. & (iii) M/s. Micro land Ltd. and inclusion of two comparables i.e., (i) M/s All sec Technologies Ltd and (ii) M/s Informed Technologies.
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 21 ::
18. The Ld. Counsel for the assessee drew our attention to the decision rendered by the he Hyderabad Bench of this Tribunal in the case of M/s.
Infor (I) Pvt. Ltd. v. DCIT [2019] 109 taxmann.com 435.
435 In the decided case, the assessee who was similarly engaged in rendering ITES services and the TPO had inter alia included the three (3) comparables compara viz., (i) M/s. Infosys BPO Ltd., (ii) M/s. Cross domain Solutions Pvt. Ltd. &
(iii) M/s. Micro land Ltd. for benchmarking the ALP. On appeal, this Tribunal is noted to have held these three (3) comparables to be functionally dissimilar in the same AY 2014-15, 15, by observing as under:-
under:
"(i)
(i) Infosys BPO Ltd.
"51. As regards the comparability of Infosys BPO Services Ltd. is concerned, the learned Counsel for the assessee submitted that it is a large company operating at high economies of scale with turnover of INR 2023 crores compared to the assessee having turnover of Rs.26.25 crores only. Further, it is submitted that it has a brand value and it employs substantial portion of its fixed assets in intangible assets. He submitted that the comparability of the said company had come up for consideration in the assessee's own case for the earlier A.Y 2011-12 2011 and also in 2013-14.
14. In A.Y 2011-12, 2011 12, the Tribunal had directed its exclusion while in 2013-14, 14, the DRP itself had directed its exclusion and the Revenue has not filed any appeal as against the same. He placed reliance upon the decision of the Hon'ble Delhi High Court in the case of Aginity India Ltd. (supra) wherein the said company has been directed to be excluded."
(ii) Cross Domain Solutions P. Ltd.
"57. As regards Cross Domain Solutions Ltd is concerned, the case of the assessee is that it is functionally dissimilar as it renders KPO services. The learned DR, however, supported the orders of the TPO & DRP.
58. As regards the services rendered by this company, company, we find that at Page 172 of the Paper Book which is the Website printout, it is shown as a "knowledge center". The learned DR had submitted that if the contents of a Website given by a company is taken into consideration, then even the assessee would be falling in the same category i.e. Knowledge Process Outsourcing. The learned DR, except for relying upon his IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 22 ::
argument that the assessee is also into high-end high end BPO services, has not been able to point out that Cross Domain Solutions Ltd is not a BPO. Therefore, ore, we direct exclusion of this company also from the final list of comparables."
(iii) Microland Ltd.
"60. As regards Microland Ltd is concerned, the case of the assessee is that it is into business of rendering hybrid IT Infrastructure and it also undertakes takes R&D activities and has achieved abnormal growth of 149% during the current A.Y. without prejudice to the above, the assessee also submitted that the correct margin of this company should be considered.
61. The learned DR, however, submitted that this company was taken up by the Assessee itself as comparable before the TPO and further that in the earlier A.Y.2013-14 A.Y.2013 14 this company has been accepted as a comparable. Therefore, he submitted that it should be retained as a comparable.
62. Having regard to the rival contentions and the material on record, we find that this company is into R & D activities and has achieved abnormal growth during the current A.Y. In the case of S & P Capital IQ (India) Ltd., we have considered the comparability of this company to ITeS company and has directed its exclusion. Respectfully following the same, we direct its exclusion for this A.Y as well."
19. Following the above decision (supra) which is found to be squarely applicable to the given facts in the present case, we are e of the view that the above three(3) companies should be excluded from the list of comparable companies for computing the ALP of the ITES segment.
20. As far as the inclusion of two (2) comparables viz., M/s. All Sec Technologies Ltd., & M/s.Informed Technologies Technologies India Ltd., Ltd. is concerned, we deal with each of them separately below.
20.1 M/s. All Sec Technologies Ltd. - The lower authorities rejected this comparable for the reason that the company incurred consistent losses for two out of three years. By relying relying on the decision of Bombay in the case of Goldman Sachs (India) Securities Pvt. Ltd., (supra), we have IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 23 ::
already held earlier, that a company cannot be held to be a 'persistent loss making company' if the company earned operating profit in one year out of the three previous years. On the given facts, it is noticed that, this company had reported profit of Rs.5.43 Crs. in FY 2013-14 4 relevant to AY 2014-15and and was providing OS data services to its clients in the ITeS Segment. Having regard to the foregoing, according to us, the earlier results/losses in preceding two assessment years cannot be reason to exclude this company by applying persistent loss-making loss making filter.
20.2 The Ld. DRP is noted to have additionally held that the export Revenue bearing to this segment was only 50% and therefore it cannot be taken as a comparable. The Ld. AR has rightly pointed out that, the export turnover filter of 25% was applied in the TP study and that the TPO had not disturbed the same. Also, the Ld. DRP has nowhere prescribed bed this filter of 50% instead of 25% in their order. This finding of the DRP is therefore whimsical/arbitrary.
whimsical/arbitrary. For the foregoing reasons, we direct inclusion of this company in the final list of comparable companies.
20.3 M/s. Informed Technologies India Ltd. - This company was excluded by the TPO on the ground that even though said company is engaged in the business of running BPO, the Revenue from ITeS is less than 75% of the Revenue as other income is more than 47.52%. The assessee challenged the exclusion exclusion of this company before the DRP and IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 24 ::
brought to its notice that the Annual Report shows more than 50 % of the Revenue was from ITeS. The Ld. DRP took note from the Annual Report that the sale of service was to the tune of Rs.2,58,53,362/-
Rs.2,58,53,362/ against the total tal Revenue of Rs.3,81,86,665/-
Rs.3,81,86,665/ which comes to only 67.7% and accordingly fails the service income filter of 75% applied by the TPO.
20.4 At the time of hearing, the Ld.AR drew our attention to the Annual Report of M/s. Informed Technologies India Ltd., kept at Page Nos.1918, 1920 & 1928 of Paper Book-II Book II and showed that the company is only engaged in BPO services and that the Schedule(s) of the P&L A/c shows that, there is no 'other income' and asserted that, it has derived 100% of its revenue from rendering rendering of BPO services. He accordingly claimed that this comparable cannot be excluded on the pretext of failing the service income filter, which though was not applied elsewhere but, in any case resulted in incorrect rejection. The Ld. CIT, DR however does not n want us to interfere with the action of the lower authorities.
20.5 Having heard both the parties, we first of all find that, there is no dispute on this company being functionally comparable. Perusal of the Annual Report of M/s. Informed Technologies India Ltd., kept at Page Nos. 1888 to 1940, and especially Page No.1920, Para No.1.14 Segment Reporting, it is noted that, the said company is principally engaged in the business of Business Process Outsourcing (BPO) which is the only IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 25 ::
reportable segment as s per Accounting Standard-17 Standard 17 and the 'Revenue from operation' is shown at Page No.1928 as Rs.2,58,53,362/-.
Rs.2,58,53,362/ In our considered view therefore, this company satisfies the comparability criteria and we thus direct inclusion of the same in the list of comparable compara companies. Our view is supported by the decision of this Tribunal in the case of M/s. Verizon Data Services India Pvt. Ltd., (supra), (supra) wherein it was held as under:
"12.. M/s Informed Technologies India Ltd.
12.1 This entity has been excluded by Ld. TPO on the ground of functional differences. The Ld. DRP confirmed the same against which the assessee is in further appeal before us.
12.2 The Ld. AR submitted that this entity operates as ITeS segment which is evident vident from disclosures made in the Annual Report. Reliance has been placed on the decision of Bangalore Tribunal in Ocwen Financial Solutions P. Ltd. (108 Taxmann.com 306) to support the arguments. The Ld. CIT-DR CIT DR submitted that this entity was functionally functionall different.
12.3 We find that this entity has been held to be a comparable entity under ITeS segment by Bangalore Tribunal in Ocwen Financial Solutions P. Ltd. (supra). As per Directors' Report (Page No.1210 of paper book), this entity is operating as IT enabled Service provider and is a leading content provider to the securities and financial research industry. Its entire revenue is out of revenue information technology services (Page 1299 of the paper book). These functions are similar to assessee's functions.
ctions. Therefore, we direct for inclusion of this entity."
entity.
21. The last effective grounds that remains for consideration is against the non-grant grant of working capital adjustment and risk adjustment while arriving at average arithmetic margin of comparable companies.
companies. Both the lower authorities are noted to have refused to allow the working capital & risk adjustment.
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 26 ::
22. Having heard both the parties, we note that similar issue had come up before the Bangalore Tribunal in the case of M/s. Citrix R&D India Pvt. Ltd. v. DCIT (supra), (supra), wherein, identical plea was raised by the assessee company and the Tribunal is noted to have observed as under:
"18.
18. The ld. counsel for the assessee submitted that a co-ordinate co ordinate Bench of ITAT Bangalore in the case of Huawei Technologies India Pvt. Ltd. IT(TP)A No.1939/Bang/2017 has dealt with the issue of granting of working capital adjustment. The Tribunal held that a reading of Rule10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly show that the net profit pr margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any,between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. The Tribunal also referred to Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the "TPG") which contains extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph aph 2 of those guidelines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that:
• None of the differences (if any) between the situations being compared could materially affect the condition being be examined in the methodology (e.g. price or margin), or • Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments.
19. The Tribunal analyzed Paragraph 13 to 16 of the aforesaid afor OECD guidelines, which highlights the need for working capital adjustment as follows:-
"13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts.
It would need to borrow money to fund fun the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 27 ::
have available to invest. In a competitive environment, the price should therefore include an element to reflect these payment terms and compensate for the timing effect.
14. The opposite applies to higher levels of accounts payable. By carrying high accounts payable, a company is benefitting from a relatively long period to pay its suppliers. It would need to borrow less money to fund its purchases and/or benefit b from an increase in the amount of cash surplus available to invest. In a competitive environment, the cost of goods sold should include an element to reflect these payment terms and compensate for the timing effect.
15. A company with high levels of of inventory would similarly need to either borrow to fund the purchase, or reduce the amount of cash surplus which it is able to invest. Note that the interest rate July 2010 Page 6 might be affected by the funding structure(e.g. where the purchase of inventory inventory is partly funded by equity)or by the risk associated with holding specific types of inventory)
16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, comparab with an assumption that the difference should be reflected in profits. The underlying reasoning is that:
• A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) • This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers - (less) the period granted to pay debts to suppliers.
20. In the aforesaid decision, the reasons for not allowing adjustment to the profit margins on account of working capital differences between the tested party and the comparable companies for the very same reasons for which CIT(A) refused to allow working capital capital adjustment in the case of the Assessee in this appeal and those reasons were as follows:
(i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed throughout the year.
(ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made.
(iii)
iii) Disclose in the balance sheet does not contain break up of trade and non-trade trade debtors and creditors and therefore working capital IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 28 ::
adjustment done without such break up would result in computation being skewed.
(iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results.
21. The CIT(A) in the decision cited by the learned counsel for the Assessee also placed reliance on a decision of Chennai ITAT in the case of Mobis India taxmann.com The Tribunal held that the ITA No.2112/Mds/2011 (2013) 38 taxmann.com. said decision was based on the factual aspect that the Assessee was not able to demonstrate how ow working capital adjustment was arrived at by the Assessee.
22. The Tribunal further held that in the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his h business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information informatio about the comparable companies. The Revenue has, on the other hand powers, to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defense to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Tribunal in the decision sion cited by the learned counsel for the Assessee before us, relied on the decision of the Delhi Bench of ITAT in the case of ITO Vs. E Value Serve.com (2016) 75taxmann.com 195 (Del-Trib) (Del wherein it was held that insisting on daily balances of working capital ital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that in Transfer Pricing Analysis there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. The Tribunal held that there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. The Tribunal also held that there is also no merit in the objection of the CIT(A) regarding absence of segmental details available availab of working capital requirements of comparable companies chosen and absence of details of trade and non-trade non trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain.
domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party.
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 29 ::
23. The Tribunal finally concluded that the the CIT(A) was not justified in denying adjustment on account of working capital adjustment.
24. In the case of the Assessee in this appeal, neither the TPO nor the DRP have gone into the quantum of adjustment that is to be given towards working of working capital adjustment, we are of the view that it would be just and appropriate to remand the issue of granting of working capital adjustment to the TPO/AO for fresh consideration in accordance with law after due opportunity of being afforded to the Assessee. We hold and direct accordingly."
23. It is noted that in the above decision (supra), the Tribunal had also considered the earlier decision rendered by this th Tribunal,, Chennai in the case of Mobis India Ltd Vs DCIT (38 38 taxmann.com 231), 231 which was relied upon by the Ld. DRP to deny the impugned working capital & risk adjustment. We find merit in the contention of the assessee that the decision in the case of Mobis India Ltd (supra)was was passed on their peculiar facts, as the assessee was unable unable to demonstrate as to how working capital adjustment was arrived by it, which is not the case before us. Therefore, we are inclined to follow the decision of the Bangalore Tribunal in the case of Citrix R&D India Pvt. Ltd., (supra) and set aside this issue back to the file of the TPO and direct him to re-consider re the issue of grant of working capital adjustment in the light of the decision of Citrix R&D India Pvt. Ltd (supra). Thus, Ground Nos. 9 & 10 are answered accordingly.
IT (TP) A No.77/Chny/201 /Chny/2018 (AY 2014-15) M/s. Symantec Software & Services India Pvt. Ltd.
:: 30 ::
24. In the light of the aforesaid aforesaid discussion, we direct the TPO/AO to compute ALP as per the directions given above, after affording opportunity of being heard to the assessee.
25. In the result, appeal filed by the assessee is partly allowed.
Order pronounced on the 13th day of June, 2025,, in Chennai.
Sd/- Sd/
Sd/-
(अिमताभ शु
ा) (एबी टी.. वक )
(AMITABH SHUKLA) (ABY
ABY T. VARKEY)
VARKEY
लेखासद य/ACCOUNTANT MEMBER याियकसद य/JUDICIAL MEMBER
चे ई/Chennai,
दनांक/Dated: 13th June,, 2025.
20
TLN
आदेश क ितिलिप अ ेिषत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF