TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Tribunal grants appeal, stresses fair assessment of working capital adjustment claim in ITES segment</h1> The Tribunal allowed the appeal for statistical purposes, emphasizing the need for a fair consideration of the working capital adjustment claim by the ... Transfer pricing adjustment - ITES segment - difference between the assessee’s profit rate and that of comparables was more than 5%, standing at 5.68% - Held that:- claim of the ld. AR before us was that the authorities below failed to grant working capital adjustment which was legally due to it. It can be seen from the TPO’s order that the assessee made a claim for the grant of working capital adjustment which has been dealt with on page 7 onwards of the TPO’s order. The decision of the TPO is recorded on page 9 rejecting the assessee’s claim at the very outset without examining its details. The DRP affirmed the view taken by the AO in the order passed pursuant to the TPO’s order rejecting the assessee’s claim. The relevant discussion is made in para 8.6 of DRP’s direction. It is noticed that the authorities below failed to consider the assessee’s claim of allowing working capital adjustment on merits and simply rejected at the same at threshold by canvassing a view that the same is allowable only in manufacturing sector or trading sector etc. We are unable to accept the view taken by the authorities below. The Delhi Bench of the Tribunal in Mercer Consulting (India) Pvt. Ltd. vs. DCIT in [2014 (7) TMI 715 - ITAT DELHI] has held that the claim for working capital adjustment cannot be dismissed without examining the same on merits. In that case also, the authorities did not admit the assessee’s claim of working capital adjustment on merits by holding that such an adjustment is possible only in the case of manufacturers/traders. In that case, the Tribunal after setting aside the order of the AO/TPO remitted the matter to the file of AO/TPO for examining the assessee’s claim for grant of working capital adjustment on merits and thereafter, allowing the same, if available. The ld. AR pointed out that the TPO himself has allowed working capital adjustment for the immediately two succeeding assessment years. - Matter remanded back - Decided in favour of assessee. Issues:Transfer pricing adjustment in ITES segmentGrant of working capital adjustmentAnalysis:1. Transfer pricing adjustment in ITES segment:The appeal was against the AO's order under sections 143(3), 144C, and 254 of the Income-tax Act, 1961 for the assessment year 2006-07. Initially, TP adjustments were made for Software development and IT enabled services (ITES) segments. However, in the present proceedings, the dispute was limited to the ITES segment. The assessee applied the Transactional Net Margin Method (TNMM) with the Profit level indicator (PLI) of OP to OC. The TPO selected four comparable cases, calculating their profits' arithmetic mean at 19.22%. Due to errors in the comparables' profit rates, the TPO rectified the mean to 18.71%. The AO then passed the impugned order based on this. The assessee contended that working capital adjustment was not granted, which was legally due. The TPO and DRP rejected this claim without proper examination. The authorities failed to consider the claim on its merits, leading to the appeal.2. Grant of working capital adjustment:The contention regarding the working capital adjustment was pivotal in this case. The TPO and DRP dismissed the claim without a detailed examination, asserting it was only applicable to the manufacturing or trading sector. However, the Tribunal in a previous case had ruled that such claims cannot be rejected without a thorough assessment. The Tribunal remitted the matter back to the AO/TPO for a detailed examination of the working capital adjustment claim. The assessee highlighted that the TPO had allowed working capital adjustment in the two subsequent assessment years. Consequently, the Tribunal set aside the impugned order and directed the AO/TPO to reconsider the working capital adjustment claim on its merits and grant it if found applicable.In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a fair consideration of the working capital adjustment claim by the authorities.
TaxTMI 
TaxTMI 
