2023 (4) TMI 1039 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions, Dismisses Revenue Appeal on Working Capital, Comparables, Disallowance

The Tribunal upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decisions on all grounds, dismissing the Revenue's appeal. The adjustments on ... TP adjustment on account of working capital - assessee had sought adjustment for working capital to account for difference in the working capital position of the assessee and the comparable companies - HELD THAT:- We find that the Co-ordinate Bench of Tribunal in the case of Sony Mobile Communication International SB [2016 (5) TMI 198 - ITAT DELHI] has held that working capital adjustment cannot be denied to the assessee if it is a service industry. It has further observed that in order to neutralize the differences on account of carrying high or low inventory, trade payables and trade receivables, as the case may be, it becomes eminent to allow working capital adjustment so as to bring the case of the assessee at par with other functionally comparable entities. It has further, by relying on the decision of.Navisite India Pvt. Ltd [2013 (5) TMI 844 - ITAT DELHI] has held that the component of working capital deployed should be considered on annual basis with the average of opening and closing figures. As Revenue has not pointed to any distinguishing feature in the facts of the case in the year under consideration and that of the earlier year. Revenue has also not placed any material on record to demonstrate that the decision relied upon by the CIT(A) has been stayed/set aside/overruled by higher judicial forum. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Exclusion of comparables - principle of res judicata - TPO study has selected certain comparable companies - TPO had rejected some of the comparables selected by the assessee and had included fresh comparables for the purpose of determination of Arm’s Length Price (ALP) - HELD THAT:- We find that CIT(A) after considering the material on record has decided the issue in favour of the assessee the comparables which were rejected in all the 4 subsequent years was not be adopted for arriving at Arm’s Length Margin in the current year. Further, as pointed out above out of the 4 comparables adopted by the appellant in the TP study, the TPO had objected to only 3 of the comparables and regarding Tata Elxsi Ltd. the TPO had mentioned that it was a good comparable but had not adopted the same in the final list of comparables. As such, the TPO is directed to adopt the named comparables for the purpose of arriving at Arm’s Length Margin of the segment. Principle of res judicata is not applicable to Income-tax cases, we have no hesitation in accepting the aforesaid principle but at the same time, various courts have held that even if the principle of resjudicata does not apply to tax matter but in the absence of any material change justifying the revenue to take a different view of the matter, the position of fact accepted by Revenue over a period of time should not be allowed to be reopened unless revenue is able to establish compelling reasons for a departure from the settled position. Before us, no distinguishing feature in the facts of the case in the year under consideration and that of the earlier year has been pointed out by Revenue. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. TDS u/s 194C - non-deduction of TDS on the printing material consumed by the assessee - HELD THAT:- Hon’ble Delhi High Court in the case of Dabur India Ltd [2005 (8) TMI 65 - DELHI HIGH COURT] held printing of the labels on the corrugated boxes did not require any special skill or involve any confidence or secrecy and therefore, the Tribunal was justified in holding that the predominant object underlying the contract was one for sale of goods which took the contract out of the purview of Section 194C - ground of Revenue is dismissed. Issues Involved:1. Adjustment on account of working capital.2. Exclusion of comparables.3. Deleting the disallowance on account of printing of packing material.Issue-wise Detailed Analysis:1. Adjustment on Account of Working Capital:The assessee sought a working capital adjustment due to differences in the working capital position between itself and comparable companies. The Transfer Pricing Officer (TPO) denied this adjustment, citing unreliable and inadequate data and noting that such adjustments should be based on daily or monthly averages rather than year-end figures. The TPO also argued that the service industry may not be relevant for such adjustments and that only receivables, out of the three components of working capital, were affected by transactions with Associated Enterprises (AEs). The Commissioner of Income Tax (Appeals) [CIT(A)] granted the adjustment, relying on the TPO's own decisions in subsequent years and the precedent set by the Delhi Tribunal in the case of Sony Mobile Communications International AB. The Tribunal upheld CIT(A)'s decision, noting no distinguishing features in the facts of the current year compared to earlier years and finding no reason to interfere with the CIT(A)'s order.2. Exclusion of Comparables:The TPO had rejected some comparables selected by the assessee and included new ones for determining the Arm's Length Price (ALP). The CIT(A) found that the TPO did not address specific objections raised by the assessee and relied on general observations. The CIT(A) noted that similar comparables were rejected in subsequent years and directed the TPO to carry out benchmarking based on a specific list of comparables. The Tribunal agreed with CIT(A), emphasizing that even though the principle of res judicata does not apply to tax matters, the Revenue should not deviate from a settled position without compelling reasons. The Tribunal found no distinguishing features in the facts of the current year compared to earlier years and upheld CIT(A)'s decision.3. Deleting the Disallowance on Account of Printing of Packing Material:The AO disallowed Rs. 4,70,71,208/- claimed by the assessee for packing material consumed, arguing that it involved job work requiring TDS under Section 194C of the Act. The CIT(A) deleted the disallowance, following the Tribunal's decision in the assessee's own case for earlier years. The Tribunal upheld CIT(A)'s decision, noting that the Revenue did not point out any distinguishing features in the facts of the current year compared to earlier years. The Tribunal also referenced the Delhi High Court's decision in the case of Dabur India Ltd., which held that printing on packing material did not require special skill and was a contract for sale of goods, thus not falling under Section 194C.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found no compelling reasons or distinguishing features to deviate from the settled positions in earlier years and relevant judicial precedents.