Assessee's Appeal Partly Allowed: Exclusion of Comparables, Working Capital Adjustment Granted

The appeal filed by the assessee was partly allowed. The Tribunal directed the exclusion of ABC Bearings from the list of comparables and allowed the working capital adjustment. Other issues were either not pressed or deemed premature. The order was pronounced on 09/07/2020.

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Issues Involved:
1. Legality of the final assessment order.
2. Transfer Pricing Adjustment.
3. Penalty proceedings under section 271(1)(c).

Detailed Analysis:

Issue No. 1: Legality of the Final Assessment Order
The assessee contested the final assessment order passed by the AO/TPO under the directions of the DRP, claiming it was "bad in law."

Issue No. 2: Transfer Pricing Adjustment
The assessee raised several sub-issues under this main issue:

2.1 Economic Analysis Rejection
The assessee argued that the DRP/TPO erred in not accepting the economic analysis undertaken by the assessee in accordance with the Act and the Rules, and wrongly concluded that the international transaction was not at arm’s length.

2.2 Single Year Data Usage
The AO/TPO used only single-year data (FY 2010-11) instead of multiple-year data as applied by the assessee in the transfer pricing documentation. The Tribunal found merit in the assessee's argument and directed the AO/TPO to consider multiple-year data.

2.3 Inclusion of ABC Bearings Ltd.
The assessee opposed the inclusion of ABC Bearings Ltd. as a comparable company, arguing it was fundamentally different in various aspects, including its market position and turnover. The Tribunal agreed with the assessee, noting that ABC Bearings had an exceptional year of performance and a significantly higher turnover, making it incomparable. The Tribunal directed the exclusion of ABC Bearings from the list of comparables.

2.4 Working Capital Adjustment
The assessee challenged the AO's refusal to allow working capital adjustments for comparable companies. The Tribunal cited Rule 10B(1) and relevant case laws, emphasizing that working capital adjustments are essential to ensure comparability. The Tribunal directed the AO/TPO to allow the requisite working capital adjustments.

2.5 Proportionate Adjustment
The assessee argued that the TP adjustment should be restricted to the value of international transactions with AE alone and not at the entity level. This issue was already allowed by the AO/DRP, and hence, it was not pressed by the assessee.

2.6 +/- 5% Benefit
The assessee did not press this issue, and it was decided in favor of the revenue.

Issue No. 3: Penalty Proceedings Under Section 271(1)(c)
The Tribunal found this issue premature for adjudication and did not address it.

Reasons for Delay in Pronouncement of Order
The Tribunal explained the delay in pronouncement due to the nationwide lockdown imposed by the Government of India in response to the COVID-19 pandemic. The Tribunal cited the unprecedented disruption caused by the pandemic as an extraordinary circumstance warranting the exclusion of the lockdown period from the computation of the 90-day period for pronouncement of orders.

Conclusion
In the result, the appeal filed by the assessee was partly allowed. The Tribunal directed the exclusion of ABC Bearings from the list of comparables and allowed the working capital adjustment, while other issues were either not pressed or deemed premature. The order was pronounced on 09/07/2020.

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