PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER:

1. This appeal by the assessee is directed against the final order of the NFAC, Delhi dated 24.2.2022 DIN No. ITBA/AST/S/143(3)/2021-22/1040073593(1) on the following grounds of appeal:-

"The grounds hereinafter taken by the Appellant are without prejudice to one another.

"I. Transfer Pricing.

1. The learned Assessing Officer ("learned AO"), learned Transfer Pricing Officer ("learned TPO") and the Honourable Dispute Resolution Panel ("Hon'ble DRP") grossly erred in making an adjustment of INR 25,02,52,221/- which includes INR 22,45,36,880/- with respect "to Information Technology enabled services ("ITES") segment and INR 2,57,15,341/- with respect to interest on delayed receivables, under section 92CA of the Income-tax Act, 1961 ("the Act").

2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant by invoking provisions of sub-section (3) of section 92C of the Act.

3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the economic and comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm's Length Price ('ALP') of the international transaction thereby following a non-transparent approach.

Segmental Computation.

4. The learned AO/learned TPO/Hon'ble DRP has erred in laws and on facts in computing the operating segmental margin of the Appellant by reallocating the employee cost within the EDS segment on the basis of revenue. The Appellant submits that it has allocated/apportioned the cost appropriately and hence, the segmental margin as computed in the documentation report is correct and ought to be accepted.

Conceptual grounds and filters.

5. The learned AO/learned TPO/Hon'ble DRP erred in applying certain filters while selecting the comparable companies for EDS and BSS segment as stated below:

The core service income filter of 75% to sales instead of 50%.

Export earning fitter of 75% of the total sales.

Employee cost filter less than 25% of total sales.

Different financial year ending filter by not considering the fact that the relevant data for the concerned financial year could be deduced from the corresponding financials.

Not appropriately applying the persistent loss filter and has rejected companies which do not have losses in all three years.

Erred in law and in facts in the computation of Related Party Transaction ("RPT") filter.

6. The learned AO/learned TPO/Hon'ble DRP erred in rejecting all the software development companies chosen by the Appellant.

7. The learned AO/learned TPO/Hon'ble DRP erred in selecting the companies only if the data pertaining to F.Y. 2016-17 is available in the public databases.

8. The learned AO/learned TPO/Hon'ble DRP erred in not appreciating the fact that since lower limit on the sales turnover has been universally accepted by both Appellant and the learned TPO, similar filter should also be applied on the upper limit on turnover "while carrying out the comparability analysis.

9. The learned AO/learned TPO/Hon'ble DRP erred in considering provision for bad and doubtful debts as non-operating in nature.

10. The learned AO/learned TPO/Hon'ble DRP erred in considering foreign exchange gain/loss as operating in nature.

11. The learned AO/learned TPO/Hon'ble DRP erred in not rejecting companies reporting abnormal margins/profits.

12. The learned AO/learned TPO/Hon'ble DRP erred in not rejecting companies with incomplete financial data.

13. The learned AO/learned TPO/Hon'ble DRP has erred in not allowing appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies.

14. The learned AO/learned TPO/Hon'ble DRP erred in not allowing appropriate adjustment towards the risk difference between the Appellant vis-a-vis the comparable companies.

Contention on comparable companies ITES Segment.

15. The learned AO/learned TPO/Hon'ble DRP has grossly erred in not rejecting the following companies:

a) Datamatics Business Solutions Ltd.

b) Microland Ltd.

c) Manipal Digital Systems Pvt. Ltd.

d) Inteq BPO Services Pvt. Ltd.

e) SPI Technologies India Pvt. Ltd.

f) Vitae International Accounting Services Pvt. Ltd.

g) Infosys BPO Ltd.

h) CES Ltd.

16. The learned AO/learned TPO/Hon'ble DRP has erred in computing the margin of the following companies:

a) Sundaram Business Services Ltd.

b) Vitae International Accounting Services Pvt. Ltd.

c) Manipal Digital Systems Pvt. Ltd.

17. The learned AO/learned TPO/Hon'ble DRP has grossly erred in not accepting the following companies as comparables:

(a) BNR Udyog Ltd.

(b) R. Systems International Ltd.

(c) Allsec Technologies Ltd.

(d) Cosmic Global Ltd.

(e) Digicall Teleservices Pvt. Ltd.

(f) Bhilwara Infotechnology Ltd.

(g) iSN Global Solutions Pvt. Ltd.

(h) I Service India Pvt. Ltd.

Interest on Outstanding Receivables.

18. The learned TPO/learned AO/Hon'ble DRP has grossly erred in law and facts by considering it as a separate international transaction.

19. The learned TPO/learned AO/Hon'ble DRP has erred in considering the balances as "unsecured loan" advanced to the AEs, thereby charging notional interest amounting to INR 2,57,15,341 as per SBI short term deposit rate.

(a) Without prejudice to the above grounds 21 and 22, the learned TPO/learned AO/Hon'ble DRP has erred in considering a credit period of 30 days, instead of 120 days as specified in the intercompany agreements, for the purpose of computing the interest on delayed receivables.

(b) The learned TPO in its order has justified and agreed computing interest on delayed receivables on LIBOR plus basis on foreign currency loans. However, in actual, interest rate as applicable to domestic loan rate was applied. Interest has been computed on reimbursement transaction included in outstanding receivables.

(c) The learned TPO/Hon'ble DRP did not appreciate the fact the Applicant has significant amount of outstanding receivables from the third party customers. As per the business policy, the Applicant does not charge any interest on such outstanding balances to third party customers.

Corporate Tax.

20. The Learned AO/Hon'ble DRP has erred in disallowing an amount of INR 1,51,32,000 under Sec. 14A of the Act read with rule 8D of the Income-tax rules, 1962, towards expenses incurred to earned exempt dividend income from mutual funds; without appreciating the fact that investments in mutual funds were made out of internal accruals and not from borrowed funds of the Company.

21. The Learned AO/Hon'ble DRP has erred in not granting of TDS credits and advance tax credit amounting to INR 11,37,75,354 and INR 5,12,70,975 respectively; claimed for the entities merged with the Company w.e.f. 01 April 2016 vide NCLT order dated 17 October 2017.

22. The Learned AO/Hon'ble DRP erred in levying interest under Sec. 234B (INR 4,53,57,312) & 234C (INR 34,97,333).

23. The Learned AO erred in not giving interest under section 244A as the Applicant would be eligible for the same after giving credit of TDS and advance tax.

The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal.

For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided."

2. Ground Nos. 1 to 3 are general in nature, which do not require any adjudication.

3. Ground Nos. 5 to 7 and ground No. 20 are not pressed and dismissed as not pressed.

4. Ground Nos. 22 & 23 are consequential in nature.

5. Brief facts of the case are that the assessee has filed its return of income on 30.11.2017 declaring total loss of Rs. 11,89,93,421/-. Subsequently, on 30.3.2018, the return was revised declaring the very loss and the book profit u/s. 115JB of the Income-tax Act, 1961 ['the Act' for short] was declared at Rs. 77,76,68,972/-. The return was processed u/s. 143(1) of the Act and the case was selected under CASS for scrutiny and statutory notices were issued to the assessee. The assessee filed documents and from those documents, the AO observed that the case should be referred to the TPO as per the CBDT instruction No. 3/2016 dated 10.3.2016. Therefore, the case was referred to the TPO after obtaining approval from the competent authority.

5.1. The Quest Global Engineering Services Pvt. Ltd. ("QGESPL") is incorporated as a Private Limited company on 5.9.2014 under the Companies Act, 2013 and is engaged in rendering Engineering services, software development and maintenance services to leading multinational operations. The company is a subsidiary of the Quest Global Mauritius Holding Ltd., a company raised under the law of Mauritius. The company has 10 locations/units out of which 7 locations/units are registered as a STPI. The functions performed by the QGESPL is conceptualization of the services to be rendered, functional specification & requirement generation, project management and execution, customer relationship management and providing back-office support services to the AEs. As per form No. 3C, the following international transactions with its AEs were undertaken:-

INTERNATIONAL & SPECIFIED DOMESTIC TRANSACTIONS (AS PER 3CEB REPORT)

3.1 As per the Transfer Pricing (TP) document furnished for the A.Y. 2017-18, the taxpayer company has entered into the following international transactions with its Associated Enterprises (AEs):

International Transactions
Particulars	Receivables/Received	Payables/Paid	Method
Provision of engineering services	30806,30,818		TNMM
Provision of backoffice support services	7407,50,417	-	TNMM
Availing of engineering services		3845,35,501	TNMM
Availing of back office support services		670,03,866	Other method
Provision of engineering			TNMM

services	3388,27,329
Compulsorily convertible debentures		5179,22,552	CUP
Purchase of .shares		28281,75,648	Other method

Reimbursement paid		201,33,759	TNMM
Reimbursement received	2204,46,872/-		Other method
Trade receivable	15389,94,045		TNMM
Advances	1287,36,578		Other method
Trade payable *'*^	^	6154,27,949	TNMM
Unbilled revenue	5195,18,878		TNMM
Purchase consideration		28281,75,64	Other method
Total	65679,04,937	72613,74,92	138292,79,86

5.2. The assessee also entered into domestic transactions with its AEs, which is as under:

Domestic Transactions
Particulars	Receivables/Received	Payables/Paid	Method
Engineering,services	775,13,225		TNMM
Engineering services		1356,99,358	TNMM
NA	933,54,860		TNMM
Total	1708,68,085	1356,99,358	3065,67,443

5.3. From the TP study, the financial results were drawn by the TPO as under:-

P&L as per TP Document
Particulars	Engineering Consulting Services			Business Support Services	Corporate/ Non- Operating	Amount
	Third Party	Domestic AE	Overseas AE	Overseas AE
Operating Income
Revenue from services	29,796	588	34,195	7,408	125	72,111

5.4. The following financials were drawn by the TPO:-

5.5. The assessee has submitted documents vide letter dated 19.2.2020, from the TP documents 11 comparables companies were selected for ITeS & Engineering Design Services (EDS) segments and applied TNMM method as a most appropriate method. The taxpayer selected comparables engaged in the very same industry vertical as the taxpayer. On 6th Jan, 2021 a show cause notice was issued to the assessee in respect of the ITeS & EDS segment. In the show cause notice, the TPO remarked on the filter applied by the assessee, defects pointed out, search process adopted by the TPO, the accept/reject matrix of companies considered by the TPO. The tax payer was informed about the rejection of the TP study reports and list of comparables selected by the TPOs. The assessee filed objections which were dealt by the TPO.

5.6. The Ld. TPO applied fresh search process for EDS & ITeS segment and adopted the following filters:

a) Use of current year data wherever available.

b) Companies having different financial years ending 31.3.2017 or data of the company which does not fall within 12 months period, it means from 1.4.2016 to 31.3.2017 were rejected.

c) Companies whose income was less than Rs. 1 crore were excluded.

d) Companies whose IT & EDS/ITeS is less than 75% of its total operating revenues were excluded.

e) Companies who have more than 25% related party transactions were excluded.

f) Companies who have export services income less than 75% of the sales were excluded.

g) Companies/employee cost less than 25% of turnover were excluded.

5.7. The Ld. TPO after applying the above filters from the 11 companies selected by the assessee as a comparable only 1 company named Tata Elxi Ltd. was selected. The Ld. TPO after applying the above filter selected 12 companies as comparable companies and calculated median at 20.84%. The assessee filed objections for the comparables selected by the TPO and the TPO dealt the objections filed by the assessee. The Ld. TPO in the final set of comparables selected 9 companies and calculated median at 20.44% and TNMM method was used. The Ld. TPO made adjustment under the EDS (SWD) segment of Rs. 38,94,99,840/-.

5.8. Further, for the ITes (Business Support Services) segment, the assessee had selected 11 comparables out of which, 3 were accepted by the TPO. The Ld. TPO started fresh selection of the comparables and he chose 17 companies and calculated median at 26.26%. The assessee filed objections regarding the comparables selected by the Ld. TPO. The Ld. TPO dealt the objections filed by the assessee and in the final set of comparables 13 companies were retained as a comparable companies and calculated median at 24.37% and made adjustment of Rs. 10,97,69,840/- applying the TNMM method. The Ld. TPO further observed that there is an outstanding receivable appearing in the balance sheet at the year end, but the assessee has not made any adjustments. The TPO, after discussing the legal aspect in regard to interest on outstanding receivables, he noticed that the real income theory is not applicable in the context of Chapter "X" of the I.T. Act, which relates to special provision relating to Arm's length price. He also observed that as per terms of the service agreement, he observed that there is no payment terms specified in the agreement with its AEs, therefore, as per the prudent estimate for captive ITeS providers, payment period of 30 days was allowed for payment of sales/services and in delay beyond the aforesaid period, he considered for bench marking analysis. He further noted that as per chapter 10, it requires tax payer to carry out FAR analysis with regard to each of the transactions entered into with the AEs. Therefore, it was incumbent upon the tax payer to separately benchmark the arm's length price of the international transaction relating to interest on overdue receivables from the AE, by way of analysis of functions, assets and risks, whereas it was not done by the tax payer in its TP documentation. Accordingly, he did not discharge his burden of proof and substantiated its claim that adjustment towards interest on overdue receivables is not justified. The assessee also failed to demonstrate that the selected comparables had similar overdue receivables and no separate adjustment is required for interest on overdue receivables. After discussing all legal aspects, he separately benchmarked these transactions using CUP as a most appropriate method, he applied CUP method and 6 months LIBOR + 400 basis points, accordingly, he calculated interest rate at 5.975%, the Ld. TPO also considered the impact of working capital adjustment and assessee was issued show cause notice on 6.1.2021 and was asked to furnish invoice-wise details of the trade receivables from the AEs during the year and the details were asked in particular format i.e. amount raised in invoice, date of invoice, date of receipt, delay in number of days to which the assessee submitted on 26.1.2021 in the specified form. After considering the submissions he made, adjustment of Rs. 5,55,90,126/- and the Ld. TPO passed order on 29.1.2021 and proposed adjustment as under:

"The delayed trade receivables is proposed to be computed on invoice basis. To calculate the delay, the Assessee (vide the show cause issued on 06.01.2021) was asked to furnish invoice wise details of all the trade receivables from AEs during the year. The following details were asked in a particular format: Amount raised in invoice, date of invoice, date of receipt, delay in No. of days. However, the Assessee submitted the required data in the format asked on 26.01.2021."

5.9. After receipt of the order passed u/s. 92CA of the Act by the Ld. TPO, the AO proceeded to completing the draft assessment order and he made adjustment as proposed by the TPO in the above paragraph.

5.10. The AO further noticed that the assessee has received dividend income of Rs. 6,08,29,372/- and claimed the same as exempt income. In this regard, the assessee has received notice u/s. 142(1) of the Act. In response to the same, assessee company stated that the company earned exempt income from investment of mutual funds and same is exempt as per provisions of section 10(35) of the Act and the investments were made out of internal accruals and not from the borrowed funds of the assessee company and he relied on the judicial pronouncements. The AO did not accept the contentions furnished by the assessee and after invoking Rule 8D of the I.T. Rules, 1962 and relying on the judgment of Hon'ble Supreme Court of India in the case of Maxopp. Investments Ltd. Vs. CIT reported in (2018) (91 taxmann.com 154), he calculated as per Rule 8D(2)(ii) of the I.T. Rules at Rs. 1,51,32,000/- as disallowance u/s. 14A r.w. Rule 8D and it was added back into the total income of the assessee and he completed the draft assessment on 18.4.2021.

5.11. Aggrieved from the above order, the assessee filed objections before the Ld. DRP. He filed detailed written submissions and they gave relief on the EDS segment and in case of ITeS segment the addition was increased to Rs. 22,45,36,880/- and interest on delayed receivables was reduced to Rs. 2,57,15,341/-. The assessee did not get any relief on the disallowance made by the AO u/s. 14A of the Act. The assessing officer passed the final assessment order on 24.2.2022. Aggrieved from the above order, the assessee filed appeal before this Tribunal.

Ground No. 4

6. The Ld. A.R. in ground No. 4 submitted that the lower authorities have wrongly calculated the segmental profit. The assessee has been earning 15% profit on the services rendered to the overseas AE under the EDS and BSS segment, which is as per the Agreement entered with the AEs. Under the EDS segment, the following types of services were provided to its AEs:

a) Services rendered to overseas AE.

b) Services rendered to domestic AE.

c) Services rendered to third parties (non-AEs).

6.1. The assessee also renders business support services to its overseas AEs as ITeS. In the TP study report, the assessee calculated profits after allocating the costs as per the guidelines incorporated by the assessee for rendering the particular services. However, the Ld. TPO has made an error in calculating the segmentwise margins. He calculated 8.68% margin for ECS segment and 8.75% for BSS segment, whereas the correct margin is 15.01% for ECS as well as BSS segment. The Ld. TPO wrongly allocated the employee cost without giving any reasons and he has accepted the employee cost as determined by the assessee for the "ECS third party segment" and allocated the balance employee cost to "ECS AE segment" and "BSS segment" based on revenue.

6.2. Further, the Ld. TPO allocated the remaining operating expenses based on revenue among the 3 segments i.e. ECS third party, ESS AE & BSS. The Ld. TPO arbitrarily adopted the method of considering the employee cost as determined by the assessee for the "ECS Third party segment" (Rs. 10,611/- lakhs) and then allocated the remaining employee cost for the other segments based on revenue. This action of the TPO in accepting the actual cost for one segment but allocating the cost as per revenue for the other two segments is without any basis.

6.3. He further submitted that the DRP while accepting the plea of the assessee that the employee cost of the BSS segment was part of the 'other expenses' erred in directing the allocation of the balance to the other segments on the basis of revenue. The assessee submitted that the DRP ought to have accepted the segmental computation as per the TP study or should have directed allocation of all expenses on the basis of revenue. While the TP Officer had computed the segmental profits by allocating expenses based on revenue, he had allocated the employee expenses of 'ECS-Third party' segment as per the TP Study and the balance was thereafter allocated to the other segments. This approach was erroneous as TP Officer out to have allocated all expenses on the basis of revenue of each segment and not adopt a selective approach. The approach directed by the DRP has led to absurdity as the margins of the assessee in the BSS segment has become 'loss' making segment. The assessee prayed that the segmental profit disclosed in the TP study is reflecting of the actual expenses incurred by the assessee under each segment and hence the same should be adopted for computing the ALP of the transactions. Without prejudice to the above, in case the expenses allocated by the assessee in the TP Study is not satisfactory then all expenses may be directed to be allocated on the basis of revenue without adopting a selective approach of actual for some segments and revenue basis for other segments. The AR of the assessee produced segmentwise allocation of expenses, which was produced. He also relied on the self-computation of allocation of expenses.

6.4. The Ld. D.R. relied on the order of the lower authorities. He further submitted that the Ld. DRP has rightly given the direction for distribution of expenses. The AR of the assessee is unable to point out any mistake on the DRP direction. He further submitted that it was the duty of the assessee to maintain the documents segment wise for correct calculation of segmental profit.

Findings:-

7. On perusal of the documents, it has been observed that the assessee has two segments first is ECS and second is BSS. During the year under consideration under the ECS segment, there was a transaction with third party and AE's transaction and BSS transactions were with Associated Enterprises and there is also corporate expenditure. The total operating revenue during the year was Rs. 72,112/- lakhs. In objection filed before the Ld. DRP, the assessee has considered that there is an employee cost expenditure of Rs. 55,35,72,612/- which includes under the head "other expenses". The Ld. DRP gave direction to the TPO as under:

"Keeping in view of this submission, the Panel is of the opinion that since the TPO has allocated the employee cost on the basis of revenue, he is directed to allocate the employee among the AE and non AE components of the ECS segment on the basis of revenue and is directed to accept the employee cost already reflected by the assessee in the BSS segment. After due verification. Objection raised is disposed off with these directions."

7.1. Further, on going through the profit & loss account, we notice that financial statement of the assessee is as under:

7.2. Further on going through the schedule No. 19 "other expenses", we notice that there is sub-contracting expenses of Rs. 54.23 crores, which are included under the head "other expenses" and employee benefit expenses is at schedule No. 18, which is Rs. 363.17 crores. These are the identifiable expenses and as per the agreement and TP study, assessee is engaged in the subcontract works also, therefore, these sub-contracting expenses should be apportioned between/among the relevant segments/departments. The assessee has himself accepted that Rs. 55.36 crores are towards employee cost for the business support service segments to which the Ld. TPO has rightly distributed. We direct the Ld. TPO for the apportionment of rest amount of expenses under the heads "other expenses" excluding the sub-contracting expenses Rs. 135.61 (189.84-54.23) crores should be divided as per the turnover of the segments of the assessee and the assessee is also agree for the apportionment on the basis of turnover. We also notice under schedule No. 19 "Other expenses" we did not find separate employee benefit expenses, each head of expenses have been characterized and debited with the amount incurred by the assessee and the assessee has also not provided detail of employee cost of Rs. 55.36 crores, in view of this it cannot be said that the employee cost of Rs. 55.36 Crores of expenses are included under the head of "Other Expenses" in schedule 19. With this direction, we are sending back the file to the Ld. TPO for fresh apportionment/distribution of the expenses among the segments of the assessee and re-calculate the margins. Accordingly, this ground of appeal is allowed for statistical purposes.

Ground Nos. 8, 13, 15 & 17:

8. The submission of Ld. AR. of the assessee is as under:

GROUND NO. 8 - TURNOVER FILTER.

GROUND NO. 13 - WORKING CAPITAL ADJUSTMENT.

GROUND NO. 15 AND 17 - EXCLUSION/INCLUSION OF COMPANIES IN ITES SEGMENT.

These 4 grounds are dealt together hereunder:

8.1. AS PER TP STUDY:

During the F.Y. 2016-17, the Appellant has received Rs. 74,07,50,417/- for rendering back-office support services (BSS or ITES) to its AE in Singapore i.e., Quest Global Services Pte Limited.

8.2. The back-office support services are primarily provided in the following areas:

Human Resources services (includes talent acquisition team, training and development, University Relationship Development teams);

• Finance/Accounts/Taxation services;

Services relating to Management Information Systems;

• Procurement/Purchase;

Quality control;

• Treasury services;

• Global delivery operations;

Information security services; Legal services;

• Business excellence;

Admin services including Facilities and Training management services;

• Operational services;

Other ancillary services.

8.3. The functions, risk and assets ("FAR") analysis is provided in pages 1423 to 1428 of paper book. The Appellant therefore classified itself as contract service provider assuming lower than normal risk associated with the provision of back office support services. The Appellant had selected Transaction Net Margin Method ("TNMM") as the Most Appropriate Method ("MAM") and had computed its margin at 15.01% on operating cost.

8.4. The Appellant carried out the search for uncontrolled comparable's which yielded a set of 11 comparable companies with 35th and 65th percentile range of the weighted average operating profit/total cost of the comparable companies of 1.55% : 12.58% and median of 5.76%. Since the profit margin of the Appellant at 15.01% on operating cost was above the median of 5.76%, the profit margin earned by the Appellant in the ITES segment was treated at arm's length.

8.5. AS PER TP ORDER:

The TP Officer rejected the TP study and conducted fresh analysis. The TP Officer agreed with the Appellant that TNMM was to be applied as the MAM. The TP Officer thereafter applied certain filters and selected 13 comparable companies in software development segment which included 10 new companies as comparables, while 5 company selected by the Appellant were retained. The list of the final set of comparables selected by the TP Officer is provided in page 68 of TP order. The TP Officer in selecting the said comparables applied the following filters.

Filters used for Software development segment.

1	Use of current year data
2	Companies having different FY ending (i,e not 31.03.2017) or data of the company does not fall within 12 month period ie, 01.04.2016 to 31.03.2017, were rejected
3	Companies whose income was less than Rs 1 crore were excluded
4	Companies whose ITES income was less than 75 percent of the total operating revenues were excluded
5	Companies who have more than 25 percent related party transactions were excluded
6	Companies who have export service income less than 75 percent of the sales were excluded
7	Companies with employee cost less than 25 percent of turnover were excluded

8.6. The TP Officer determined the 35th to 65th percentile at 22.37% to 27.41% with median at 24.37% based on the weighted average operating profit/total cost of the 13 comparable companies in ITES segment.

SNo.	Company Name	Average of 3 years
1	Sundaram Business Services Ltd.	2.08%
2	Jindal Intellicom Ltd.	7.41%
3	Fuzen Software Pvt Ltd.	15.93%
4	Microland Ltd (seg)	17.53%
5	Tech Mahindra Business Services	22.37%

6	Datamatics Business Solutions Ltd.	22.64%
7	Infosys BPM Services Ltd	24.37%
8	Vitae International Accounting	27.13%
9	Manipal Digital Systems Pvt Ltd.	27.41%
10	CES Ltd,	29.00%
11	Ultramarine & Pigment Ltd. (seg)	34.41%
12	SPI Technologies India Pvt Ltd.	36.95%
13	Inteq BPO Services Pvt Ltd.	39.51%
	35th Percentile	22.37%
	Median	24.37%
	65ihPercentile	27.41%

* The comparables at Sl. No. 1, 2 and 5 are TP study comparables accepted by the TP Officer.

8.7. The TP Officer did not grant any adjustment towards working capital. "The TP Officer however re-computed the profit margin of the Appellant at 8.75% against the margin of 15.01% determined by the Appellant in the TP study.

8.8. The issue pertaining to re-computation of margins is discussed in detail under submissions for Ground No. 4 (supra).

8.9. A summary of the international transaction, margin computed, and ALP determined is provided in the table below

Particulars	As per TP Officer
Total Operating Revenue (Rs)	76,48,00,000
Total Operating Expenses (Rs)	70,32,00,000
Operating Profit (Rs)	6,16,00,000
OP/ OC (percent)	8.75
Median (percent)	24.37
Arm's length price	87,45,69,84
TP adjustment (Rs)	10,97,69,84

8.10. The directions of the DRP with respect to the comparables sought to be excluded from the final set considered by the TP Officer are provided:

S No.	Comparable	Directions of DRP	Page reference
1	Datamatics Business Solutions	Retained	Page 61-62
2	Microland Ltd	Retained	Page 62
3	Manipal Digital Systems Pvt Ltd	Retained	Page 62-64
4	Inteq BPO Services Ltd	Retain eo1-	Page 64-65
5	SPI Technologies India Pvt Ltd	Retained	Page 65-68
6	Vitae International Accounting Services Pvt Ltd	Retained	Page 68-70
7	Ultramarine & Pigments	Excluded	Page 70
8	Infosys BPO Ltd	Retained	Page 71-74
9	CES Ltd	Retained	Page 74-76

8.11. The directions of the DRP with respect to the comparables sought to be included are provided below:

S No.	Comparable	Directions of DRP	Page reference
1	BNR Udyog Ltd	Rejected	Page 76-77
2	Crystal Voxx Ltd	Included	Page 78
3	R Systems International Ltd	Rejected	Page 78
4	Allsec Technologies Ltd	Rejected	Page 78-79
5	Cosmic Global Ltd	Rejected	Page 79-80
6	Digicall Teleservices Pvt Ltd	Rejected	Page 80
7	Bhilwara Infotechnology	Rejected	Page 80-81
8	ISN Global Solutions Pvt Ltd	Rejected	Page 81
9	I Services India Pvt Ltd	Rejected	Page 81

8.12. The DRP directed the TP Officer to verify and recompute the margins of the following comparables:

Sl. no.	Comparable
i	Sundaram Business Services Ltd
2	Vitae International Accounting Services Pvt
3	Manipal Digital Systems Pvt Ltd

8.13. The TP Officer has passed the order dated 22.02.2022 to give effect to the directions of the DRP. The TPO re-computed the profit margin of the Appellant at (-) 5.19% against the margin of 8.75% determined in the TP order and the margin of 15.01% determined by the Appellant in the TP study.

S No.	Company Name	Average of 3 years (OP/OC)
1	Sundaram Business Services Ltd.	2.08%
2	Crystal Voxx Ltd	5.48%"
3x	Jindal Intellicom Ltd.	7.41%
4	Fuzen Software Pvt Ltd.	15.93%
5	Microland Ltd (seg)	17.53%
6	Tech Mahindra Business Services	22.37%
7	Datamatics Business Solutions Ltd,	22.64%
8	Infosys BPM Services Ltd	24.37%
9	Vitae International Accounting Services Pvt Ltd.	27.13%
10	Manipal Digital Systems Pvt Ltd.	27.41%
11	CES Ltd.	29.00%
	Ultramarine & Pigment Ltd. (seg)	Excluded
12	SPI Technologies India Pvt Ltd.	36.95%
13	Inteq BPO Services Pvt Ltd.	39.51%
	35th Percentile	17.53%
	Median	22.64%
	65th Percentile	27.13%

8.14. The TP Officer after giving effect to the directions of DRP computed the adjustment as under:

Particulars	As per TP Officer
Total Operating Revenue (Rs)	76,48,00,000
Total Operating Expenses (Rs)	80,67,00,000

8.15. SUBMISSIONS OF THE APPELLANT:

Operating Profit (Rs)	(-)4, 19,
OP/ OC (percent)	(-)5.19
Median (percent)	17.53
Arm's length price	98,93,36,88
TP adjustment (Rs)	22,45,36,88
TP adjustment as per TP Order	10,97,69,84
Enhancement pursuant to DRP	11,47,67,04

The Appellant has filed a CHART as Annexure-2 containing the arguments against the comparables sought to be excluded. The Appellant submitted that the following companies fail the turnover filter of Rs. 1 cr. to Rs. 200 cr. and hence they deserve to be excluded from the final set:

The Appellant relied on the following recent decisions of this Hon'ble Tribunal which has upheld application of turnover filter:

S No.	Company Name	Rs/Cr
	Turnover of the Appellant	76.48
1	Tech Mahindra Business Services	707.60
2	Infosys BPM Services Pvt Ltd	2,940
3	SPI Technologies India Pvt Ltd	347.68

BORQS Software Solutions Pvt. Ltd. [IT(TP) A. No. 310/Bang/2021] ANSR Global Corporation Pvt. Ltd. [IT(TP) A. No. 225/Bang/2021]

8.16. The Appellant further submitted that it had made claim for grant of working capital adjustment before the TP Officer and the DRP but the same has not been granted. The Appellant relief on the following case laws for grant of working capital adjustment at actuals:

Huawei Technologies India (P) Ltd. [2019] 101 taxmann.com 313 (Bang) Altimetrix India Pvt. Ltd. [IT(TP) A. No. 477/Bang/2021]

8.17. The Appellant submitted that after re-computing the operating margins and applying turnover filter to exclude comparables and allowing working capital adjustment, the margins of the Appellant will be at arm's length and hence, the arguments seeking exclusion and inclusion of comparables in Ground No. 15 and 17 become academic. The Appellant however prayed that liberty may be reserved to contest the same at appropriate time.

9. The Ld. D.R. relied on the order of the lower authorities. He submitted that merely if the turnover is more than Rs. 200 crores as decided by the various coordinate benches if the comparable companies are functionally comparables as filter supplied by the TPO, it should not be excluded only on the basis of turnover that the turnover is more the specified limits and the turnover criteria is not a particular criteria for excluding companies. He also reiterated the order of the Ld. DRP on this issue.

10. After hearing rival contentions and perusing the entire materials on record, we notice that the turnover of the assessee is Rs. 76.48 crores on back-office support service (BSS or ITeS) segment. The Ld. A.R. submitted that the Ld. TPO has applied lower turnover filter, whereas the upper turnover filter has not been applied for selecting comparable companies. He further submitted that the coordinate benches have decided this issue on various cases that the upper turnover filter should be applied as per the turnover classification done in the case of BORQS Software Solutions Pvt. Ltd. (IT(TP) A. No. 310/Bang/2021. During the course of hearing, the Ld. A.R. relied on the judgment of the coordinate bench of this Tribunal in the case of BORQS Software Solutions Pvt. Ltd. (IT(TP) A. No. 310/Bang/2021 and in the case of ANSR Global Corporation Pvt. Ltd. (IT(TP) A. No. 225/Bang/2021 and the relevant part of the judgment in IT(TP) A. No. 310/Bang/2021 is as under:

"11. As far as comparability of companies listed as (a) to (g) in Grd. No. 8.7 raised by the Assessee is concerned, the admitted factual position is that the turnover of these companies is more than Rs. 200 Crores and the Assessee's turnover is only Rs. 24,71,71,242/-. The TPO excluded from the list of comparable companies chosen by the Assessee in its TP study companies whose turnover was less than Rs. 1 Crore. The contention of the Assessee before the DRP was that while the TPO excluded companies with low turnover, he failed to apply the same yardstick to exclude companies with high turnover compared to the Assessee. The reason for excluding companies with low turnover was that such companies do not reflect the industry trend as their low cost to sales ratio made their results less reliable. The contention of the Assessee was that there would be effect on profitability wherever there is high or low turnover and therefore companies with high turnover should also be excluded from the list of comparable companies. The DRP primarily relied on the decision rendered by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors India Pvt. Ltd. Vs. DCIT 82 Taxmann.com 167 (Del), wherein it was held that high turnover ipso facto does not lead to the conclusion that a company which is otherwise comparable on FAR analysis can be excluded and that the effect of such high turnover on the margin should be seen. The DRP therefore held that a company which is otherwise functionally comparable cannot be excluded only on the basis of high turnover. The Assessee has raised Grd. No. 4 before the Tribunal challenging the aforesaid view of the DRP.

12. On the issue of application of turnover filter, we have heard the rival submissions. The parties relied on several decisions rendered on the above issue by the various decisions of the ITAT Bangalore Benches in favour of the Assessee and in favour of the Revenue, respectively. The ITAT Bangalore Bench in the case of Dell International Services India (P) Ltd. Vs. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib)order dated 13.10.2017, took note of the decision of the ITAT Bangalore Bench in the case of Sysarris Software Pvt. Ltd. Vs. DCIT (2016) 67 Taxmann.com 243 (Bangalore-Trib) wherein the Tribunal after noticing the decision of the Hon'ble Delhi High Court in the case of Chryscapital (supra) and the decision to the contrary in the case of CIT Vs. Pentair Water India Pvt. Ltd., Tax Appeal No. 18 of 2015 dated 16.9.2015 wherein it was held that high turnover is a ground to exclude a company from the list of comparable companies in determining ALP, held that there were contrary views on the issue and hence the view favourable to the Assessee laid down in the case of Pentair Water (supra) should be adopted. The following were the conclusions of the Tribunal in the case of Dell International (supra):

"41. We have given a very careful consideration to the rival submissions. ITAT Bangalore Bench in the case of Genesis Integrating Systems (India) Pvt. Ltd. v. DCIT, ITA No. 1231/Bang/2010, relying on Dun and Bradstreet's analysis, held grouping of companies having turnover of Rs. 1 crore to Rs. 200 crores as comparable with each other was held to be proper. The following relevant observations were brought to our notice:-

"9. Having heard both the parties and having considered the rival contentions and also the judicial precedents on the issue, we find that the TPO himself has rejected the companies which (sic) making losses as comparables. This shows that there is a limit for the lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which are loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun & Bradstreet & Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun & Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very important and the companies having a turnover of Rs. 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study."

42. The Assessee's turnover was around Rs. 110 Crores. Therefore the action of the CIT(A) in directing TPO to exclude companies having turnover of more than Rs. 200 crores as not comparable with the Assessee was justified. As rightly pointed out by the learned counsel for the Assessee, there are two views expressed by two Hon'ble High Courts of Bombay and Delhi and both are non-jurisdictional High Courts. The view expressed by the Bombay High Court is in favour of the Assessee and therefore following the said view, the action of the CIT(A) excluding companies with turnover of above Rs. 200 crores from the list of comparable companies is held to correct and such action does not call for any interference."

13. The Tribunal in the case of Autodesk India Pvt. Ltd. Vs. DCIT (2018) 96 Taxmann.com 263 (Banglore-Tribunal), took note of all the conflicting decision on the issue and rendered its decision and in paragraph 17.7. of the decision held as that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. The following were the relevant observations:

17.7. We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by the Hon'ble Delhi High Court in the case of Chryscapital Investment Advisors (India) Pvt. Ltd., (supra) was as to whether comparable can be rejected on the ground that they have exceptionally high profit margins or fluctuation profit margins, as compared to the Assessee in transfer pricing analysis. Therefore as rightly submitted by the learned counsel for the Assessee the observations of the Hon'ble High Court, in so far as it refers to turnover, were in the nature of obiter dictum. Judicial discipline requires that the Tribunal should follow the decision of a non-jurisdiction High Court, even though the said decision is of a non-jurisdictional High Court. We however find that the Hon'ble Bombay High Court in the case of CIT Vs. Pentair Water India Pvt. Ltd. Tax Appeal No. 18 of 2015 judgment dated 16.9.2015 has taken the view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee.

17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments 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 coordinate 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 Generale 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 have to be regarded as per incuriam. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of companies in determination of ALP under the Transfer Pricing regulations under the Act. For the reasons given above, we uphold the order of the CIT(A) on the issue of application of turnover filter and his action in excluding companies by following the ratio laid down in the case of Genisys Integrating (supra).

14. In view of the aforesaid decision, we hold that companies listed in Sl. No. (a) to (g) of Grd. No. 8.7 raised by the Assessee whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies."

10.1. Respectfully following the above judgment, we allow the ground raised by the assessee on this issue and the TPO is directed to exclude the company Tech Mahindra Business Services Ltd., Infosys Business Services Ltd. and SPI Technologies India Pvt. Ltd. from the final set of comparables. In the result, the ground raised by the assessee on this issue is allowed.

Ground No. 13 Working Capital Adjustment:

11. The assessee has raised this ground for not granting providing working capital adjustment while calculating the adjustment by the Ld. TPO. In this regard, the Ld. AR submitted that the working capital adjustment must be granted to the assessee and he relied on the following judgments:

1) Huawei Technologies India (P) Ltd. (2019) 101 taxmann.com 313 (Bang).

2) Altimetrix India Pvt. Ltd. (IT(TP) A. No. 477/Bang/2021.

12. The Ld. D.R. relied on the order of the lower authorities and he submitted that during the course of TP proceedings, the assessee was not able to demonstrate that working capital differences had impacted its profits. The working capital adjustment sought by the assessee is calculated between the tested party and the comparable companies. However, such differences in working capital levers cannot be measured with reasonable accuracy and details were provided by the assessee. The Ld. DRP observed as under

11.1 Panel; Working Capital Adjustment:- Having considered the submissions, we note that 10B provides for making reasonably accurate adjustment to the uncontrolled comparable transaction to eliminate the material effects of differences on the price, cost or profits. The assessee has argued for working capital adjustment contending that there exist-differences in the payable and receivable position between the assessee and the comparables. However, it was not demonstrated with any data or information as to the impact of such difference on the price, cost or profits, and as to whether such difference materially affects the price, cost or profits. The 'Accounts payables' and 'Receivables' shown in the balance sheet only reflects the position as at the end of the financial year, and as such it would not enable to measure the impact of working capital on the costs, price or profits. The working capital requirements and impact depends on various factors such as business cycle, the nature of business activity with its correlation on the general economic trends, the fund and capital position of the company, its marketing strategies, its. market share etc. all of which cannot be captured in-the year end Receivable or Payable position. Besides, the 'Payable' and 'Receivable'", position stated in the Balance Sheet may not exactly reflect as to whether it arises from transaction relating to Revenue Account or Capital Account as there is no uniformity in the accounting or reporting requirements, and an intermixing is generally possible. The cost ascribable to the working capital would be different-to different enterprises depending on the cost" of "fund to the enterprise, the cost of money in the economy it operates etc. In view of these, a reasonable accurate adjustment is not possible, as the differences in working capital requirements itself is based on various assumptions. Besides, we also note that the assessee had failed to demonstrate such material differences so as to warrant an adjustment. In these circumstances, we are inclined to uphold the TPO's reasoning and reject the assessee's claim for working capital adjustment.

13. After hearing rival contentions and perusing the materials available on record we noted that the working capital adjustment is to be given and it is a mandatory requirement to allow adjustment if the assessee is able to provide the reasonable/accurate data of the comparable companies and in support of our decisions, we rely on the judgments cited by the Ld. A.R. in the case of Huawei Technologies India (P) Ltd. cited supra in which it has been held as under:-

13. In Paragraphs 13 to 16 of the aforesaid OECD guidelines, need for working capital adjustment has been explained 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 the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise 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 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 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 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, 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."

14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficulty in making working capital adjustment by concluding that the following factors have to be kept in mind (i) The point in time at which the Receivables, Inventory and Payables should be compared between the tested party and the comparables, whether it should be the figures of receivables, inventory and payable at the year end or beginning of the year or average of these figures, (ii) the selection of the appropriate interest rate (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. The guidelines conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables.

15. In the present case the TPO allowed working capital adjustment accepting the calculation given by the Assessee. The CIT(A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons:

(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) Disclose in the balance sheet does not contain break up of trade and non-trade debtors and creditors and therefore working capital 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.

16. The CIT(A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT(A) in the impugned order. 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 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 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 defence 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 Delhi Bench of ITAT in the case of ITO v. E Value Serve.com [2016] 75 taxmann.com 195 (Delhi - Trib.). has held that insisting on daily balances of working capital 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 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. Therefore there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the CIT(A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and 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. 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. Therefore this objection of the CIT(A) is also not sustainable.

17. In the light of the above discussion we are of the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 173 & 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should 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. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT(A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows:

"(3) An uncontrolled transaction shall be comparable to an international transaction if--

(i) None of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or

(ii) Reasonably accurate adjustments can be made to eliminate the material effects of such differences."

18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly.

13.1. Respectfully following the above judgments, we direct the assessee for providing necessary data for substantiating its claim before the AO/TPO. Accordingly, this ground of appeal is allowed for statistical purposes.

14. In respect of ground Nos. 15 & 17 the AR of the assessee submitted after re-computing the operating margins and applying turnover filter to exclude comparables as above and allowing working capital adjustment, the margins of the assessee would be at arm's length and hence, the arguments seeking exclusion and inclusion of remaining comparables in Ground No. 15 and 17 become academic. The Appellant however prayed that liberty may be reserved to contest the same at appropriate time. Considering the above, we grant liberty to the assessee to contest the remaining comparables in at appropriate circumstances. Accordingly, the ground Nos. 15 & 17 became academic in nature and it do not require for adjudication.

Ground Nos. 18 & 19:

15. The Ld. A.R. relied on the written submissions.

15.1. AS PER TP OFFICER (para 27 page 70-83 of TP Order):

The TP Officer treated the trade receivables as an international transaction and adopted notional interest rate of 14% being SBI PLR rate, without providing the method of computation of such rate to the Appellant (page 98 of TP order). The TP Officer therefore made adjustment of Rs. 5,55,90,126/-.

15.2. AS PER DRP (page 31-38 of DRP directions):

The DRP had directed the TP Officer to adopt the SBI short term deposit interest rate and directed the TP Officer to verify and compute interest on delayed receivables for the relevant financial year. The DRP did not give any show cause notice or opportunity of hearing, before proposing to adopt SBI short term deposit interest rate.

The TP Officer on giving effect to the directions of the DRP has determined the adjustment for interest on delayed receivables at Rs. 2,57,15,341/- against the adjustment of Rs. 5,55,90,126/- made in the TP order.

15.3. SUBMISSIONS OF THE APPELLANT:

The action of the TPO/DRP is wrong, for the following reasons:

(i) It is settled principle, upheld in several decisions of the Hon'ble Tribunal, that LIBOR should be adopted for benchmarking the interest on receivables and not the Bank rate, as adopted by the TPO/DRP.

(ii) The TPO should perform a benchmarking analysis for this transaction, which has not been done.

(iii) The DRP and the TP Officer has not appreciated that the Appellant is not charging interest to both AE's and non-AE's.

(iv) The TP Officer and the DRP have selectively considered interest on trade receivables without considering the interest on payables (page 1810 of paper book). The Appellant submits that the interest on payables to the AE required to be netted-off while computing the notional interest on receivables.

15.4. As per agreement, the credit-limit of 120 days is agreed with the AE (page 1544 paper book). The TPO has allowed only 30 days credit period.

The Appellant relies on the decision of this Hon'ble ITAT in the case of Verifone India Technology Private Limited [IT(TP) A. No. 290/Bang/2021] wherein, the Hon'ble ITAT under similar circumstances has remitted the issue to the TP Officer for determining the ALP, i.e., interest on delayed receivables by following the Rules.

The Appellant submits that this Hon'ble Tribunal has been consistently adopting LIBOR rates for computing interest on receivables. The matter therefore requires to be remanded to the TP Officer to adopt LIBOR rate as per the decisions of this Hon'ble Tribunal.

The Appellant relies on the decision of this Hon'ble Tribunal in the case of 15G Novasoft Technologies Ltd. [IT(TP) A. No. 3284/'Bang/2018] wherein, the Tribunal has held as under:

"24. We have heard both the parties and perused the material on record. The Ld. AR fairly conceded that outstanding amount on account of sales/services billed to AE akin to loan advanced by assessee is an international transaction. As held by the Hon'ble Delhi High Court in the case of Avenue Asia Business Advisors (P.) Ltd. v. DCIT [2017] 398 ITR 120 (Del) [LQ/DelHC/2017/1837] , there should be TP adjustment on this count after making proper TP study by the TPO after considering the period of credit enjoyed by the comparables and also applicable LIBOR rate in the place of AEs for benchmarking the rate of interest to arrive at the ALP. With these observations, we remit the issue in dispute to the file of AO/TPO to benchmark the interest rate in the light of the decisions cited by Ld. DR. Further, we make it clear that the TPO should compute the interest only for the relevant assessment year after going through the relevant agreements entered by the assessee with AEs while computing the ALP."

Emphasis supplied

16. The Ld. DR. relied on the order of the lower authorities & submitted that all the allegations raised by the AR of the assessee are not tenable in the eyes of law.

17. We have heard the rival submissions and perused the materials available on record. These grounds are with regard to determination of ALP by construing the delayed realization of receivable by the Assessee from its AE as a separate international transaction and determining ALP of such delayed receivables. The facts in this regard are that in the order passed under section 92CA of the Act determined a TP adjustment of Rs. 5,55,90,126/- in respect of delayed receivables on a notional manner. The TPO has observed in this regard in his order that the Assessee was asked to furnish details of trade receivable and details of realization which were submitted. The TPO to determine the interest attributable to delayed realization of trade receivables by applying 6 months LIBOR plus 400 basis points with a mark-up of 100 basis points (which works out to 5.975%). The interest were calculated only for the accrued during the year. After direction of the Ld. DRP the adjustment has been come down because as per direction the SBI short term deposit rate was applied. Considering the rival submissions and decisions of the co-ordinate benches of the Tribunal the interest on receivables have been upheld that it is an international transactions and separate bench markings are required to be done for interest on delayed receivables. In view of this we direct to the AO/TPO for calculating afresh after applying 6 months LIBOR plus 300 basis points with a mark-up of 100 basis points and decide the issue as per law. The assessee is directed to provide the necessary documents. This ground of appeal is allowed for statistical purpose.

18. In the result, the appeal of the assessee is partly allowed for statistical purposes.