TaxTMI 
TaxTMI 
2026 (1) TMI 1644
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....t also strictly in the light of, and in faithful conformity with, the binding directions issued by this Tribunal in the first round. 2. The assessee company forms part of the globally renowned Red Hat Group and is ultimately held by Red Hat Inc., USA. The assessee is engaged in the business of providing open-source software solutions to customers across jurisdictions. Owing to the intrinsic nature of open-source software, the business model of the group does not envisage charging customers for the software itself. Instead, the commercial value is realised through subscription-based services, updates, support, and enterprise solutions, with Red Hat Enterprise Linux constituting the principal driver of the group's worldwide growth strategy. This fundamental business architecture has a direct bearing on the transfer pricing analysis and cannot be viewed in isolation or through a narrow lens. 3. In the original transfer pricing proceedings, the learned Transfer Pricing Officer observed that during the relevant previous year the assessee had entered into several international transactions with its Associated Enterprises. These transactions included payment of royalty and service f....
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....peal. While adjudicating the matter, the Tribunal specifically held that the assessee was entitled to working capital adjustment and proportionate adjustment, and accordingly restored the matter to the file of the TPO with clear and categorical directions to verify the computations furnished by the assessee in its transfer pricing study and detailed working capital adjusted margin computation, and thereafter grant appropriate adjustment in accordance with settled judicial principles. The directions issued by the Tribunal were neither tentative nor discretionary, but binding in nature. 7. Pursuant to the aforesaid directions, the learned TPO initiated remand proceedings and passed a fresh order under section 92CA(3) on 27 January 2024, proposing a revised adjustment of INR 6,09,14,692. Once again, the assessee approached the DRP. The DRP, vide its directions dated 28 November 2024, restricted the adjustment only to payment of royalty and service fees under the subscription segment. Consequently, the learned Assessing Officer passed the impugned Order Giving Effect dated 31 December 2024, incorporating an adjustment of INR 4,23,90,382, while deleting all other adjustments. The det....
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....s of the case and in law, in the absence of notice of demand under section 156 of the Act being served on the Assessee by the Ld. AO, the final assessment order issued under section 143(3) r.w.s. 254 of the Act is bad in law, and hence is liable to be quashed. Henceforth all the grounds are without prejudice to the Ground No. 1-3 above. Grounds relating to Corporate Tax 4. The Ld. AO erred in short granting credit of Taxes Deducted at Source to the extent of INR 4,91,39,976. 5. The Ld. AO erred in not granting Minimum Alternate Tax Credit under section 115JAA of the Act amounting to INR 1,70,215. 6. The Ld. AO erred in not granting Foreign Tax Credit under section 90 of the Act amounting to INR 3,61,224. 7. That Ld. AO erred in not granting credit of Self Assessment Tax paid vide Challan dated 19 October 2024 (S. No. 18904) amounting to INR 10,00,00,000. 8. The Ld. AO erred in on facts and in law in not granting interest under section 244A of the Act. Grounds relating to Transfer Pricing Adjustment - INR 42,390,382- Adjustment relating to international transaction pertaining to payment of royalty and service fee (Subscription Segment) - ....
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....produced hereunder: "12. On facts and circumstances of the case and in contrary to the law, Ld. AO erred in passing the order under section 143(3) r.w.s 254 of the Income tax Act 1961, without affixing digital signatures on the order, thus rendering such order to be bad in law and liable to be quashed." 9. During the course of hearing, the learned Authorised Representative appearing for the assessee advanced elaborate submissions. At the threshold, it was contended that the impugned order giving effect itself does not conform to the mandate of section 144C(13) of the Act and is therefore legally untenable. On merits, it was emphatically submitted that the sole surviving transfer pricing adjustment would not survive if the working capital adjustment and proportionate adjustment, as already directed by this Tribunal in the first round, are properly granted. It was further submitted that once the working capital adjustment is allowed, the assessee's margin falls comfortably within the arm's length range, rendering the dispute on comparables entirely academic. 10. We have carefully considered the rival submissions, perused the material available on record, and examined t....
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....aced reliance on the decision of the Bangalore Bench in Huawei Technologies India (P.) Ltd., wherein the methodology for computing working capital adjustment has been elaborately examined. The relevant observations are reproduced hereunder. "..26. We have given our thoughtful consideration to the rival submissions and perused the material available on record. It is noted that in assessee's own case for Assessment Years 2016-17 and 2017-18, the coordinate benches of this Tribunal have already accepted the principle that working capital adjustment (WCA) ought to be granted to the assessee, so as to neutralise the differences arising on account of varying levels of receivables, payables, and inventory maintained by the assessee vis-a-vis the comparables. Such adjustments are in recognition of the fact that differences in working capital deployment can materially affect profit margins, thereby distorting comparability unless neutralised through appropriate adjustments. It is further relevant to note that not only has this Tribunal in assessee's own earlier years consistently upheld the claim of working capital adjustment, but even other judicial forums, including the ....