Assessee Company was engaged in rendering marketing support services (MSS) to its Associated Enterprises (AEs). It was also providing Microsoft consultancy services and product support services. The AO excluded two comparable company namely R Systems International and Helios & Matheson Information Technology Limited selected by assessee on ground that said company had a different financial year ending. The Tribunal relying on the Delhi HC decision in the case of CIT v. Mckinsey Knowledge Centre India (P.) Ltd. [IT Appeal No. 217 of 2014, dated 27-3-2015] held that if a company is otherwise functionally similar, then, it cannot be excluded only on the ground of having a different financial year ending.

The TPO had applied a filter of the related party transaction of 25%based on which a comparable namely Sonata Software Limited was included. However, the related party transactions of the comparable worked out at 53.83%. The Tribunal held that since the related party transactions in company are more than 50% of sales, company does not pass related party filter applied by TPO and accordingly directed to exclude the said company as comparable.

The TPO also denied working capital adjustment on the grounds that the same was not be allowed in the case of service industry. The Tribunal following the decisions of Bangalore Tribunal in the case of Goldman Sachs Services (P.) Ltd. v. Jt. CIT [2020] 115 taxmann.com 286/182 ITO 189 wherein such adjustment was granted by the co-ordinate bench and accordingly allowed working capital adjustment. (AY.2010-11)