Tribunal allows appeal on working capital adjustment & directs AO to verify, upholds Revenue's challenge on comparables.

The Tribunal allowed the assessee's appeal regarding the working capital adjustment, citing provisions allowing such adjustments in transfer pricing. The Tribunal directed the Assessing Officer to verify the adjustment's computation. The Revenue's challenge on the exclusion of comparables was upheld as the assessee did not contest it. The inclusion of unutilized MODVAT credit in closing stock was affirmed based on a previous decision. The Tribunal partially allowed both the Revenue's appeal and the assessee's cross objection, addressing the issues thoroughly.

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Issues:
1. Working capital adjustment in transfer pricing study report.
2. Exclusion of comparables selected by the Transfer Pricing Officer.
3. Inclusion of unutilized MODVAT credit in closing stock.

Working Capital Adjustment:
The appeal and cross objection arose from an order pertaining to the assessment year 2012-13. The assessee, engaged in manufacturing clutches, had international transactions with its Associated Enterprise. The Transfer Pricing Officer rejected the assessee's benchmark and made adjustments resulting in a Rs. 2.33 crore addition. The learned Commissioner (Appeals) granted partial relief but disallowed the claim of working capital adjustment. The assessee argued that the adjustment should be allowed as per transfer pricing provisions, citing various decisions. The Tribunal agreed, stating that working capital adjustment impacts pricing and profitability, and Rule 10B(e)(iii) provides for such adjustments. The Tribunal directed the Assessing Officer to verify the computation of working capital adjustment and determine the arm's length price of the international transaction.

Exclusion of Comparables:
The Revenue challenged the exclusion of three comparables by the Transfer Pricing Officer. However, the learned Authorised Representative, on behalf of the assessee, did not contest these grounds. Consequently, the Tribunal allowed grounds 1, 2, and 3 raised by the Revenue without delving into the issues further.

Inclusion of Unutilized MODVAT Credit:
The Revenue contested the direction to include unutilized MODVAT credit in the closing stock, following a decision in the assessee's own case for the assessment year 2011-12. The Tribunal found that a previous decision had upheld a similar direction by the learned Commissioner (Appeals). Therefore, the Tribunal dismissed the Revenue's ground, aligning with the previous decision.

In conclusion, the Tribunal partly allowed the Revenue's appeal and the assessee's cross objection, addressing the issues of working capital adjustment, exclusion of comparables, and inclusion of unutilized MODVAT credit in a comprehensive and legally sound manner.

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