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2015 (5) TMI 1090 - AT - Income TaxTransfer pricing adjustment under the segment of 'Provision of software development and maintenance support services’ on one hand and 'Provision of back office support services’ including `Provision of finance and accounts support services’- grant of working capital adjustment - Held that:- Such an adjustment is restricted to inventory, trade receivables and trade payables. If a company carries high trade receivables, it would mean that it is allowing its customers relatively longer period to pay their amounts, which will result into higher interest cost and the resultant low net profit. Similarly, by carrying high trade payables, a company benefits from a relatively longer period available to it for paying back to its suppliers, which reduces the interest cost and increases profits. In order to neutralize the difference on account of inventory, trade payables and trade receivables, it is of utmost importance to allow working capital adjustment for bringing the case of the assessee at par with the other otherwise functionally comparable entities. We, therefore, agree in principle with the grant of working capital adjustment. The entitlement of the assessee to the working capital adjustment, cannot be denied. When the TPO rejected the assessee’s claim for the grant of any working capital adjustment at the threshold itself, there was no reason for him to examine the veracity of the computation of working capital adjustment as put forth on behalf of the assessee. Under such circumstances, we direct the AO/TPO to compute working capital adjustment, if any, available under both the segments, namely, Provision of software development and maintenance services and Merged provision of back office support services and F&A support services distinctly in the light of our above discussion. Needless to say, the assessee will be allowed an opportunity of hearing in such fresh determination of the working capital adjustment, if any. Reducing lease line charges from `total turnover’, after excluding it from `export turnover’ - assessee claimed the benefit of section 10A - Held that:- We find force in the contention raised by the ld. AR, requiring the exclusion of this amount from `total turnover’ as well. The obvious reason is that when a particular item does not form part of export turnover, which, in turn, is a necessary ingredient of the total turnover, the same has to be necessarily excluded from the computation of latter.
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