Working capital adjustments in transfer pricing ALP and depreciation on computer peripherals at 60% allowed; risk adjustment denied.

In determining ALP for the assessee's international transaction, the ITAT held that working capital differences materially affect comparability and directed the AO/TPO to grant an appropriate working capital adjustment, resulting in recomputation of the transfer pricing adjustment. However, it rejected any risk adjustment because the assessee failed to objectively quantify risk differentials, so no such adjustment was permissible. On depreciation, the ITAT treated computer peripherals as part of the computer system and, following binding precedent, allowed depreciation at 60%, overturning the lower authority's restriction as office equipment. Levy of interest under s.234B was held to be consequential. The appeal was partly allowed.

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Issues Involved:
1. Transfer pricing adjustment on account of the international transaction.
2. Depreciation on computer peripherals.
3. Charging of interest u/s 234B.

Summary:

Issue 1: Transfer Pricing Adjustment
The assessee entered into an international transaction with its parent company in the U.S. for which it received Rs. 7,25,28,815/-. The Assessing Officer (AO) referred the determination of arm's length price to the Transfer Pricing Officer (TPO). The TPO selected two comparables, Bodhtree Consulting Ltd. and SIP Technologies, and calculated a mean margin of 23.64% compared to the assessee's margin of 14.86%, resulting in an adjustment of Rs. 55,73,934/-. The assessee contended that a working capital adjustment was necessary due to its risk-free nature and advance payments received. The Tribunal agreed that working capital adjustment should be given, directing the AO to make appropriate adjustments. However, the Tribunal did not agree with the assessee's contention for risk adjustment, stating that unless risk is quantified objectively, no adjustment can be made.

Issue 2: Depreciation on Computer Peripherals
The assessee claimed depreciation on computer peripherals at 60%, which the AO disallowed, treating them as office equipment. The Tribunal held that the issue is covered by the decision in CIT vs. BSES Rajdhani Powers Ltd., allowing depreciation at 60%.

Issue 3: Interest u/s 234B
The issue of charging interest u/s 234B was deemed consequential and did not require adjudication.

Conclusion:
The appeal filed by the assessee is partly allowed, with adjustments directed for working capital but not for risk, and depreciation on computer peripherals allowed at 60%.

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