TaxTMI 
TaxTMI 
2023 (10) TMI 1184
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....2 Erred on facts and in law in rejecting the working capital adjustment computed by the Appellant, by arbitrarily stating that the Appellant has failed to demonstrate the difference in working capital employed by the Appellant and the comparables. Further, erred in law and on facts in arbitrarily concluding that working capital adjustment need not be granted to the Appellant despite negative working capital in the Appellant's case, thereby contradicting the Ld.DRP's own admission (in Para 13.1 of the DRP Direction) that the working capital adjustment shall be allowed to the Appellant only in case of a negative working capital." (ii) As regards to erroneous rejection of comparables by the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP), the assessee want inclusion of the following two companies:- 1) Akshay Software Technologies Limited (CDS Segment) and 2) R Systems International Limited (CDS Segment) The ld.counsel stated that apart from above three issues, the assessee is withdrawing all the grounds and not pressing. Hence, we proceed to adjudicate these three issues only. 3. First, we will deal with the issue of working capital adjustment. 4. Briefly ....
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....decision of the Honourable ITAT 'C' bench Chennai in ITA No. 2112/Mds/2011 (AY 2007-08) in the case of Mobis India Limited vs. DCIT. In this case the appellant had negative working capital. Despite this fact, the Honourable ITAT held that "the assessee has not been able to justify the adjustments that were required to be made on account of negative working capital." Therefore the assessee's claim is rejected. Hence the above ground rejected." Aggrieved, now assessee is in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee argued that the TPO erred in not allowing economic adjustments for difference in working capital employed by assessee and its comparables. The assessee submitted that Atmel India in its Contract Development Segment (CDS) operates relatively with higher level of accounts payable than that of comparable companies. According to assessee, this results in Amtel India working capital percentage on operating cost turns out to be negative i.e., 9.71% and it filed a working chart from the financials as under:- Working Capital Contract Development Segment Opening Closing Average Trade Debtors - - - Advances to suppliers ....
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....order dated 08.07.2015. The CIT(A) on the other hand had placed reliance on the decision of Delhi Bench of Tribunal in Vedaris Technologies Pvt. Ltd. v ACIT (supra) and the OECD Guidelines. In view of the above, we find merit in the order of CIT(A) in directing the Assessing Officer to grant working capital adjustment to the assessee on the basis of average credit/debit period for the year and commercial rate of interest. In view thereof, we find no merit in the grounds of appeal raised by the Revenue and the same are dismissed." 6. Contradicting the above arguments of the ld.counsel, the ld.CIT-DR argued that in case the assessee has positive working capital, assessee is not entitled for adjustment on account of negative working capital of the comparables because the assessee has not justified the adjustment that were required to be made on account of negative working capital. He further submitted that the contention of the assessee would be relevant only in the event of assessee's working capital being negative. Therefore in the instant case there can be no grievance for the assessee since its margin are not affected by negative working capital. The ld.CIT-DR relied on the d....
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....se of Software AG (India) Pvt. Ltd., supra. Hence, we direct the TPO to allow the claim of assessee accordingly. This issue of assessee's appeal is allowed. 8. Coming to the TPO rejecting Akshay Software Technologies Limited which is functionally comparable and basis of revenue also similar. For this, assessee has raised following Ground No.2.7:- "2.7 Further, the Ld.TPO erred in rejecting Akshay Software Technologies Limited (CDS Segment) and Cyber Media Research Limited (SSS Segment) which are functionally comparable and ought to be accepted." 9. Brief facts related to this issue are that the assessee company is primarily engaged in the business of providing Contract Development Support services with respect to design, development and testing of products relating to integrated circuit and semiconductor devices and related software development services. The assessee while carrying out TP research and prepared TP report included Akshay Software Technologies Ltd., has functionally comparable and accordingly, it was included by assessee as comparable in its TP report. The TPO rejected Akshay Software Technologies Ltd., for the reason that it is predominantly engaged onsite develo....
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.... and Rs. 6,30,000/- towards sale of product. Under these circumstances, we find substance in the contention of the Ld. A.R that Akshay Software should have been accepted as comparable to bench mark the international transaction of the assessee also because in the assessment year 2007-08, the Ld. T.P.O himself has accepted the company as comparable. We accordingly direct the Ld. T.P.O to accept Akshay Software as comparable to determine the Arms Length Price of the assessee. 11. On the other hand, the ld.CIT-DR argued that Akshay Software Technologies Limited is predominantly engaged in onsite development whereas the assessee is engaged in offshore development. Further the assessee has cited onsite expenditure indicating onsite functions as a reason to object to a comparable identified by the TPO, namely, Persistant Systems. Hence, the assessee is inconsistent. He further submitted that this ground of appeal of the assessee has been dealt with in detail by DRP in para 17.1 while rejecting assessee's appeal. 12. We have heard rival contentions and gone through the facts and circumstances of the case. Before us, it was argued that Akshay Software Technologies Ltd., is involved i....
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....re us, the ld.counsel argued that the fact that the company R Systems International Ltd., has a statutory year ending on 31st December, 2012 as against financial year ending on 31st March, 2013 does not by itself render that company incomparable for the reason that the financial information is very much contemporaneous and falls within the permitted period as permitted by the Act. Additionally assessee's counsel argued that company conducting its business in any industry goes through a business cycle, wherein it begins as a start-up company and then matures to a grown up company. Thus, a mere difference of a few months between the tested party's financial closure and that of the comparables will not have an impact on the comparison. The ld.counsel for the assessee also drew our attention to the provisions of Rule 10B(3) of the Income Tax Rules, which reads as under:- An uncontrolled transaction shall be comparable to an international transaction if - (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising fr....