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2020 (12) TMI 1255 - ITAT BANGALORETP Adjustment - Comparable selection - negative working capital adjustment - HELD THAT:- Referring to assessee ITeS company companies functionally dissimilar with that of assessee. Negative working capital adjustment - There is no allegation in the case of the assessee that the assessee has used any borrowed fund for working capital or there is any risk of money lost in credit time provided to the customers. Accordingly, we hold that negative working capital adjustment is not justified in the case of the assessee. Inclusion of ICRA Online Ltd. - CIT(A) has analyzed the functional details and come to the conclusion that ICRA Online Ltd. is a Knowledge Process Outsource (KPO) company which is different from Business Outsource Company (BPO) which is the line of business of the Assessee in the present case. Hence, we uphold the exclusion of this company from the list of comparable companies. I-Gate Global Solutions Ltd.- We uphold the exclusion of this company from the list of comparable companies by applying the turnover filter. Determining ALP under TNMM - As correct approach would be to look at the costs incurred by the assessee only and should not impute any additional cost as done by TPO, which indirectly enhances the ALP artificially. The contrary view expressed in decision cited by the learned DR takes the view that Working capital adjustment is required in all cases as any credit extended to customers will result in cash locked up and will result in the assessee borrowing money from the banks and incur additional cost towards interest on these borrowings which cost will have effect on the price charged. It is the reasoning in these decisions that under TNM method that every ingredient of profit margins of comparable companies are analysed, whether it is positive or negative. The decision proceeds on the basis of effect on price owing to working capital requirement. We are of the view that working capital adjustment itself is computed on the basis of outstanding current assets and liabilities at the year end. It means that other things being equal, an entity having higher working capital will incur more interest cost which will reduce profitability. Hence no importance shall be given to pricing aspect. Since the assessee does not have any working capital risk, the question of negative working capital does not arise.
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