2018 (8) TMI 1820 - AT - Income Tax

ITAT Upholds Transfer Pricing Adjustments & Working Capital Adjustment Decisions

The ITAT dismissed both the department's and the assessee's appeals, upholding the Ld. CIT (A)'s decisions on transfer pricing adjustments and working ... TP Adjustment - Allowability of working capital adjustment - HELD THAT:- The revenue’s stand that the assessee is ineligible for any adjustments if he provides the set of comparable is not correct because under Rule 10(3) it is the duty of the AO/TPO/DRP to minimize/eliminate the difference which is likely to materially affect the price. It is the settled proposition that ‘working capital’ adjustment is an adjustment that is required to be made in TNMM. Allowability of working capital adjustment has been upheld by the various Benches of the ITAT. ITAT Delhi has held working capital adjustment to be allowable in the cases of Mentor Graphics [2007 (11) TMI 339 - ITAT DELHI-H] and Sony India [2008 (9) TMI 420 - ITAT DELHI-H] . Therefore, in view of the settled judicial precedents and further in view of the fact that the Ld. Sr. DR could not point out any legal infirmity in the direction of the Ld. CIT (A) for allowing working capital adjustment, we are unable to agree to the contentions of the Ld. Sr. DR and we find no reason to interfere with the findings of the Ld. CIT (A) on this issue. - Decided against revenue. Issues:Transfer pricing adjustment, working capital adjustment based on OECD formulaTransfer Pricing Adjustment:The case involved an appeal by the department against the order passed by the Ld. CIT (Appeals) for assessment year 2009-10, regarding transfer pricing adjustments recommended by the Transfer Pricing Officer (TPO). The TPO had recommended an upward adjustment of &8377; 15,20,75,072 with respect to the Arms' Length Price (ALP) due to international transactions related to purchases from Associated Enterprises. The Ld. CIT (A) partly allowed the assessee's appeal, upholding the TNMM method for benchmarking and directing adjustments in certain areas. The Ld. CIT (A) directed the TPO to restrict the Transfer Pricing Adjustment only to international transactions with Associated Enterprises. The department challenged certain aspects of the Ld. CIT (A)'s decision, but the ITAT dismissed the department's appeal, upholding the findings of the Ld. CIT (A) on this issue.Working Capital Adjustment based on OECD formula:The department appealed against the Ld. CIT (A)'s direction to grant working capital adjustment based on OECD formula and taking 10.25% as the Prime Lending Rate. The Ld. Sr. Departmental Representative argued that the Ld. CIT (A) erred in allowing the working capital adjustment, contending that it was not applicable to the assessee. However, the ITAT, after considering the arguments and precedents, upheld the Ld. CIT (A)'s decision. The ITAT found no legal infirmity in the direction for working capital adjustment and dismissed the department's appeal on this issue, stating that working capital adjustment is necessary in TNMM and has been allowed in previous cases by various ITAT Benches.In conclusion, both the assessee's and the department's appeals were dismissed by the ITAT, upholding the Ld. CIT (A)'s decisions on transfer pricing adjustments and working capital adjustment based on OECD formula. The ITAT found no reason to interfere with the Ld. CIT (A)'s findings on these issues and pronounced the order on 14th August 2018.