TaxTMI 
TaxTMI 
2026 (10) TMI 530
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....e Indian market. In addition, the Assessee undertook certain other international transactions with its AEs, including availing of IT support services, rendering management services and earning indenting commission during the relevant year. For benchmarking the aforesaid transactions, the Assessee used TNMM as MAM. The Assessee has benchmarked these transactions at entity level and calculated net profit margin at 4.11%, taking PLI as OP/OR. The assessee claimed its international transactions to be at arm's length based on TNMM benchmarking. The Assessee identified a set of 7 companies whose margins were in the range of 2.61% to 3.90% against which the assessee's margin of 4.11% was better. The TPO did not agree with the assessee's comparable companies and conducted a fresh search for comparable companies. As a result of this, the TPO identified a set of 10 companies whose margin was in the range of 4.19% to 5.85% (median 4.67%). Since the assessee's margin of 4.11% was below this range, the TPO computed an adjustment of Rs. 2,13,98,282/-.The Assessee objected to the TPO's approach inter-alia by challenging the selection of comparable companies by the Ld. TPO, rej....
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.... raised this contention before the DRP as Ground of Objection No. 2 and the DRP dismissed the contention by stating that the Assessee ought to take recourse of rectification proceedings for such a contention. Aggrieved with the above approach of the TPO and the DRP, the Assessee has approached this Tribunal. 7. It was submitted that the assessee has since obtained copies of the annual report of these companies, and where the three-year weighted average margin of the comparables selected by the TPO are computed from the respective annual reports, the range comes to 3.88% to 5.86%, with a median margin of 5.16% and the assessee's margin of 4.11% falls within the range and hence, the transaction will be at arm's length as per details below: Sr. No. Particulars Selected by For the year ended March 31 2020 For the year ended March 31 2019 For the year ended March 31 2018 Weighted Average Unadjusted Margins 1 Gangar Opticians Private Limited Assessee 1.41% 3.68% -0.31% 1.59% 2 Remi Sales & Engg. Limited Assessee 2.94% 4.28% 0.11% 2.51% 3 Kox Med & Lab Private Limited Assessee 3.27% 3.54% 4.24% ....
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....y has been noticed in the computations." 9. Further, in the context of ground no. 10, it was submitted that the assessee be allowed a working capital adjustment to iron out differences in the levels of working capital between the Assessee and the comparable companies. The Assessee had provided the computation of the working capital adjustment to the Ld. DRP, however, the DRP did not allow the working capital adjustment. 10. It was submitted that pursuant to directions of the Bench, the verification of working capital adjusted margins was also carried out by the TPO and in his remand report, the TPO confirmed that the working capital adjusted margins computed by the Assessee were in agreement with the figures disclosed in the annual reports of the comparables and concluded that no discrepancy was found in the computation and the contents of the remand report reads as under: "2. Verification of Working Capital Adjustment 2.1 The detailed computation of the Working Capital Adjustment (WCA) furnished by the assessee was also examined and verified." Sr. No. Particulars FY 2017- 18 (Yr 1) FY 2018- 19 (Yr 2) FY 2019- 20 (Yr 3) Weighted Average 1 Kox ....
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....eady been verified by the TPO and found to be in order and in terms of Rule 10B(I)(e)(iii) r/w section 92CA, the net profit margins have to be adjusted to take into account the differences between the international transaction and the comparable uncontrolled transactions which necessarily include working capital adjustment. In light of the same, we find that the assessee's margins (4.11%) fall within the range of working capital adjusted margins (3.08% to 5.81%) of the comparable companies with median of 4.55% and thus, no transfer pricing adjustment is called for. 14. The ground no. 9 & 10 are accordingly allowed and in view of the same, rest all grounds of appeal no. 3-8 are rendered academic and dismissed as infructious. 15. Ground No. 11 and 13 relate to disallowance of Rs. 11,51,940/- under section 37(1) of the Act. In this regard, it was submitted that the amount of Rs. 11,51,940/- represents interest on income-tax pertaining to A.Y. 2019-20. The said amount was duly disallowed by the Assessee under Section 40(a)(ii) of the Act while filing its return of income for the year under consideration. The aforesaid disallowance of Rs, 11,51,940/-, as made by the assessee in it....