TaxTMI 
TaxTMI 
2026 (5) TMI 168
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....barred proceedings 2. erred in not passing the final assessment order within the time limit as provided under Section 153 of the Act i.e., the outer limit for passing of the final assessment order which for AY 2022-23 was 31 March 2025 whereas the final assessment order was passed on 30 October 2025, thus making the assessment proceedings time barred and bad in law and thereby ought to be quashed. Reference to the TPO 3. erred in making a reference of the Appellant's case to the learned TPO, without complying with the provisions of Section 92CA of the act. Determination of ALP for the publishing support services transaction 4. erred in determining the arm's length operating margin for the publishing support services transaction to be 8.05% on operating costs. Incorrect computation of Appellant's operating margin (OP/OC) 5. as computed in TP study report by: erred in recomputing the Appellant's operating margin as 5.38%, compared to 10.14% I. incorrectly treating write-off of Service Exports from India Scheme ('SEIS') as an operating expense, disregarding Appellant's consistent positi....
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....roup's funding requirements, and that the Appellant does not incur any finance charges for working capital (such as interest on loan) to internal or external sources and thus any adjustment of notional interest on outstanding receivables of the Appellant is not warranted. 13. Without prejudice to grounds 10-12 above, the learned TPO erred in adopting State Bank of India's ('SBI') Prime Lending Rate ('PLR') instead of London Inter Bank Offer Rate ('LIBOR') to compute interest disregarding the fact that the AE (borrower) is based in foreign jurisdiction and the receivables (deemed loan) are denominated in foreign currency. 14. Without prejudice to grounds 10-13 above, the learned TPO has erred in imputing notional interest on outstanding receivables for a period beyond 31 March 2022. 15. erred in initiating penalty proceedings under Section 270A of the Act. 16. erred in law and facts in levy of interest under section 234A, 234B and 234C of the Act of Rs 24,10,914/-. 3. Brief facts of the case is that the assessee is a private limited company and incorporated under Companies Act, 1956. The assessee is service compa....
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....,000/- Rs. 92,46,000/- Interest on receivables Rs. 1,10,10,775/- Rs. 1,10,10,775/- Consequently, the Ld AO passed the impugned final order by assessing the assessee's income at Rs. 5,78,93,145/-. Being aggrieved the assessee filed an appeal before us. 4. The Ld. AR argued and filed a paper book comprising pages 1 to 732 which has been placed on record. The Ld. AR advanced his argument ground wise which is as below: Ground No. 5 : The Ld. Authorised Representative (Ld. AR) argued that Ld. AO had made incorrect re-computation of Operating Margin. The Ld. AR contended that the Ld. TPO erred in recomputing the operating margin of the assessee at 5.38% on operating cost, as against 10.14% computed in the Transfer Pricing Study Report, by incorrectly altering the treatment of certain income and expense items. The said recomputation, according to the Ld. AR, has resulted in an artificial distortion of the operating profitability of the assessee and consequently led to an unwarranted transfer pricing adjustment. The Ld. AR submitted that the incorrect recomputation of the operating margin primarily arose on account of the following two adjustments made by the le....
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....=C*D 1,72,95,951 1,02,91,549 70,04,401 Sales rates F 95% 83% Sale of scripts G=E*F 1,64,31,153 85,41,986 78,89,167 SEIS Income written off in FY2022 79,31,000 Consequently, the assessee reversed the excess income earlier accrued, resulting in a write-off of Rs. 79,31,000/- during the year under consideration. The Ld. AR submitted that the assessee has consistently treated SEIS income as non-operating for transfer pricing purposes, since such income does not arise from the core activity of providing publishing support services but rather from a government incentive scheme. It was therefore argued that once SEIS income itself has been treated as nonoperating, the reversal or write-off of such income must necessarily receive the same treatment. Treating SEIS income as non-operating while treating the reversal is thereof as operating would violate the principles of consistency and matching and would artificially distort the operating margin. The Ld. AR submitted that if the SEIS reversal is excluded from operating expenses, the revised operating margin of the assessee works out to 7.85%, which fa....
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....ich again falls within the arm's length range determined by the DRP. Accordingly, the Ld. AR contended that the transfer pricing adjustment relating to publishing support services deserves to be deleted. 7. The Ld. DR argued stated that During the TP assessment proceedings, Ld. TPO treated foreign exchange gain/loss as non-operating in nature while recomputing the operating margin of the assessee on the basis of following * In the TP study report, the Appellant considered forex fluctuation as operating while computing its margins and treated forex fluctuation as nonoperating while computing operating margins of comparable companies, * Relied upon Rule 10TA, contending that foreign exchange fluctuation is required to be treated as non-operating in nature. The Ld. DR stands in favour of the orders of revenue authorities. 8. After considering the submissions of the Ld. AR and the material placed on record, it is observed that the recomputation of the operating margin by the Ld. TPO is primarily based on the reclassification of SEIS reversal and foreign exchange fluctuation. The assessee has demonstrated that SEIS related income has consistently been treat....
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....ded that the DRP rejected the argument for grant of working capital adjustment on the following premise: * Working capital adjustment based on opening and closing balance-sheet figures does not reflect intra-year movements in receivables, payables and inventory. * Cost of capital differs across companies, and working capital adjustment based on broad assumptions may not yield reliable results. * Working capital adjustment is highly data-intensive and daily working capital levels would be the most reliable basis for such computation. 12. In this regard, the Ld. AR contended that WCA based on opening and closing balance-sheet figures does not reflect intra-year movements in receivables, payables and inventory. He stated that WCA is a recognised comparability adjustment under TNMM, intended to account for differences in working capital levels which particularly accounts receivable and accounts payable between the tested party and the comparables, as such differences affect sales, cost of sales and profitability. However, the DRP's concern that opening/closing figures may not capture intra-year movements pertains to the computation of WCA, rather than ....
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....over the year. Therefore, the absence of daily data cannot be a basis to deny WCA where the adjustment can be computed on a reasonably accurate basis using representative averages/periodic data, consistent with the recognized computation method. 14. We have heard the rival submissions and perused the material available on record. The issue under consideration pertains to the grant of working capital adjustment under Rule 10B(1)(e)(iii) while benchmarking the international transactions under the TNMM. It is an undisputed position that working capital adjustment is a recognized comparability adjustment intended to neutralize differences in receivables, payables, and inventory between the tested party and the comparable companies, which materially impact profitability. We find merit in the contention of the Ld. AR that denial of working capital adjustment solely on the ground of absence of daily working capital data is not justified. The OECD Transfer Pricing Guidelines also recognize that, in the absence of daily data, reasonable approximations such as averages based on opening and closing balances can be adopted, provided they reasonably reflect the working capital position durin....