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2015 (10) TMI 484 - AT - Income TaxDetermination of arm’s length price (ALP) in respect of an international transaction entered into with its Associated Enterprise (AE) - accepting/rejecting certain comparables - Held that:- Bodhtree Consulting Ltd. and KALS Information Systems Ltd. should be excluded from the list of comparable companies for the purpose of determining the ALP. It is also relevant to point out that in the case of CISCO Systems India Pvt. Ltd. (2014 (11) TMI 849 - ITAT BANGALORE) the very same 11 companies had been chosen by the TPO as comparables, thereby making it clear that the assessee in the present case and CISCO Systems India Pvt. Ltd. have the same business profile. Working capital adjustment - Held that:- The assessee has taken a specific plea that the TPO has used incorrect value of receivables and payables for comparable companies. In Annexure-II to the submissions before the CIT(Appeals), the assessee has also given the details which are enclosed to this order. Perusal of the order of the CIT(Appeals) shows that none of these contentions have been considered by him. We are, therefore, of the view that the order of CIT(Appeals) on this issue should be set aside and the AO/TPO should be directed to examine the details and arrive at the correct working capital adjustment. We hold and direct accordingly. Treating foreign exchange gain or loss and provision for bad debts as non-operating in nature and fringe benefit tax as part of operating cost - Held that:- Exchange Fluctuation gains are required to be added to operating revenue. Following the same, the AO is directed to accept the claim of the Assessee in this regard. As far as provision for bad debts are concerned, the TPO has accepted that the same would be part of operating expenses provided the same is incurred every year for at least three years and the manner in which provision is made is consistent. The Assessee in reply to the query of the TPO on the above aspect has not furnished any details. We are of the view that the Assessee should be afforded opportunity to explain its position on the above and the AO is directed to consider the same in accordance with law. As far as Fringe Benefit Tax (FBT) is concerned, the same was not considered by the TPO as part of operating cost in the case of comparables and therefore the same should also not be considered as part of operating cost of the Assessee. We hold accordingly and direct the AO to compute the operating cost of the Assessee Working capital adjustment has to be allowed on the basis of requirements of working capital in the case of the assessee and the comparable companies. Just because if on a proper working of the working capital adjustment, it reflects a negative working capital adjustment, that cannot be the basis not to grant working capital adjustment. In other words, working capital adjustment has to be allowed based on the working capital requirements of the assessee and the comparable companies irrespective of the fact, whether such adjustment is negative or positive. To this extent, we are of the view that the observations of the CIT(Appeals) are incorrect. We have already directed the AO/TPO to work out the proper working capital adjustment. This ground of appeal is therefore treated as allowed for statistical purposes.
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