Working capital adjustment in transfer pricing must be given effect where comparability requires neutralising differences and the margin remains arm's length.

Working capital adjustment in transfer pricing benchmarking was held to be required where an earlier binding direction had already mandated verification of the assessee's computation, and impractical demands such as daily working capital balances could not be used to deny comparability. On the adjusted computation, the assessee's margin fell within the arm's length range, so the surviving transfer pricing adjustment was deleted. Separate claims for TDS credit, MAT credit, foreign tax credit, self-assessment tax credit, and interest under section 244A were remitted for verification and grant after due opportunity of hearing.

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Issues: (i) whether the assessee was entitled to working capital adjustment in transfer pricing benchmarking and whether the surviving transfer pricing adjustment could be sustained; (ii) whether the claims for TDS credit, MAT credit, foreign tax credit, self-assessment tax credit, and interest under section 244A required verification and grant.

Issue (i): whether the assessee was entitled to working capital adjustment in transfer pricing benchmarking and whether the surviving transfer pricing adjustment could be sustained

Analysis: The earlier round had already directed grant of working capital adjustment after verification of the assessee's computation. That direction was binding on the lower authorities. The insistence on daily working capital balances and other impractical parameters was held to be unsustainable, particularly when the assessee's own case in earlier years had accepted the principle that working capital differences must be neutralised to ensure proper comparability. On the adjusted computation, the assessee's margin was found to fall within the arm's length range.

Conclusion: The assessee succeeded on this issue. The working capital adjustment was directed to be granted and the sole surviving transfer pricing adjustment was deleted.

Issue (ii): whether the claims for TDS credit, MAT credit, foreign tax credit, self-assessment tax credit, and interest under section 244A required verification and grant

Analysis: These monetary claims were not finally quantified in the order. The Assessing Officer was directed to verify the assessee's evidence and grant the admissible credits and interest after due opportunity of hearing.

Conclusion: The assessee obtained a limited procedural relief. These grounds were allowed for statistical purposes.

Final Conclusion: The appeal succeeded on the core transfer pricing dispute, while the credit and interest claims were restored for verification and consequential action.

Ratio Decidendi: Where a prior binding direction has already held that working capital adjustment is warranted, the lower authorities must give effect to it in substance, and such adjustment cannot be denied on impractical evidentiary demands that defeat comparability.

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