AI Drafter 
TaxTMI 
TaxTMI 
2024 (6) TMI 1052
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....e-tax Act, 1961 [the Act] for the AY 2015-16 in the second round of proceedings before the ITAT. The Tribunal in IT(TP)A No.2309/Bang/2019 vide order dated 28.9.2020 set aside the issue of working capital adjustment to the file of AO/TPO. Subsequently, the TPO discussed the issue in para 4.2 to 4.2.4 and rejected the claim of assessee to allow working capital adjustment and made TP adjustment of Rs.1,08,78,064 which was incorporated in the draft assessment order. The assessee raised objections before the DRP. 2. The DRP after discussing the working capital adjustment in para 3.1 rejected the claim of the assessee. The DRP observed that the assessee has not demonstrated with any data or information as to the impact of such difference on t....
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....ferences between the controlled transactions and uncontrolled comparable transactions the same need to be adjusted to improve the reliability of the transfer pricing analysis. The Appellant submits it is engaged in business of energy management solutions. For companies engaged in manufacturing, the working capital cycle plays as important role and optimum utilization of working capital components like raw materials, receivables, inventory and payables is very important. 2.3 The Appellant is given long credit period by the related party and is therefore not exposed to the working capital risks unlike comparable companies. The Appellant has tabulated below various ratios for comparison: Ratios Acme Cleantech Solutions Limited ....
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....sses all the reasons of rejection of working capital adjustment given by the DRP[decision is attached as Annexure 1]. 2.7 The Appellant also places reliance on following decisions wherein working capital adjustment was granted: • M/s Euronet Services India Pvt Ltd vs DCIT [IT(TP)A No.962/Bang/2022, dated 31.08.2023] [Page 178 of PB-II] • Parexel International Clinical Research (P.) Ltd vs ACIT [2023] 152 taxmann.com 355 (Bangalore-Trib.); • Parexel International (India) (P.) Ltd vs ACIT [2023] 156 taxmann.com 609 (Hyderabad -Trib.); • Medtronic Engineering and Innovation Centre Pvt Ltd vs DCIT [ ITA No.225/Hyd/2021, Hyderabad Tribunal] 2.8 Based on all the above, the appe....
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....es engaged in different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non- trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT(A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual a....
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....n daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that that in Transfer Pricing Analysis there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the CIT(A) regarding absence of segmental de....
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....e open market. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT(A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: "(3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, ....