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TMI Blog2015 (10) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... e correct practice is to take the average of the opening and closing balances assuming that the average value prevailed during the entire year. 2. On the facts and in the circumstances of the case the Learned CIT(A) has failed to appreciate the fact that the assessee is not eligible for the benefit of +/- 5% as standard deduction in view of provisions of section 92C(2) of the Act, where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean by an amount not exceeding 5% of such arithmetical mean and when the ALP of the international transactions undertaken by the assessee falls beyond the 5% margin of the price of International Transaction computed by the assessee. 3. For these and such other reasons as may be urged at the time of the hearing, the order of the Learned Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 4. The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 4. The assessee in ITA No. 1550/PN/2012 has raised the following grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its risk profile. 6. The Commissioner of Income Tax (Appeals) - I Pune erred in not appreciating that for the purposes of bench-marking, profit after tax should have been considered and tax cost should have been considered as a part of operating costs as the Appellant Company was eligible to claim benefit of deduction u/s. 10A and the basic nature of such benefits / incentives is to help the software companies compete globally. 7.1 The Commissioner of Income Tax (Appeals) - I Pune erred in not appreciating that the Appellant Company was eligible to claim tax holiday u/s.10A and had no reason to manipulate the value of its International Transactions as there was no benefit in shifting profits outside India. 7.2 Further he erred in not appreciating that the effective tax rate in USA was higher than the applicable tax rate in India and the organization of the Associated enterprise of the Appellant Company was significantly stronger and substantially larger as compared to the Appellant Company. Further the Associated Enterprise had incurred operating losses during the year under consideration. 8. The Appellant Company craves leave to add to, alter, amend, modify and / or delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services and also undertook other activities such as documentation, customization of repairs and working on add-on modules for existing software products of Emptoris Inc, USA. The assessee was thus, a service company engaged in rendering software development and support as well as testing and documentation services to its associate enterprises. The assessee benchmarked its international transactions with the companies engaged in software development services being comparable to it. As per the agreement between the assessee and its associate enterprises, the consideration for services was fixed at service providers cost plus 10% margin. The claim of the assessee before the authorities below in addition to the allowability of certain administrative expenses and risk adjustment was that working capital adjustment should be allowed to the assessee, as working capital position of the assessee was better as compared to the working capital position of the companies considered as comparable. The assessee sought adjustment on account of the above said factors including working capital adjustment. The assessee had picked up certain comparables which were not accepted by the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. As per the assessee, the working capital adjustment was required to be made for the comparables adopted by the Assessing Officer and if the said adjustment is made, then the net margins of the comparables would be within acceptable range of +/- 5% of the margins of the assessee. It was also pointed out to the CIT(A) that the Assessing Officer / TPO in assessment year 2006-07 and in other cases as well as DRP in assessment year 2007-08, had accepted and allowed the working capital adjustment. The CIT(A) observed that the working capital adjustment has to be granted to the assessee vis-à-vis the results of the comparables adopted by the Assessing Officer. It was further held by the CIT(A) that the denial of adjustment by the TPO was not correct and was based on facts which were not properly appreciated. Referring to the computation filed by the assessee, the CIT(A) observed that since the computation was not analyzed and discussed by the TPO, even though the same was made available to him, the CIT(A) directed the Assessing Officer to verify the calculation and compute as per the records and in case it is found that after working capital adjustment, the margins comes with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a mark-up of 10% on cost, working capital adjustment on such account merits to be allowed to the assessee. The OECD has provided guidelines for such working capital adjustment and the said guidelines are one of the accepted modes of computing working capital adjustment. In view thereof, we hold that the assessee is entitled to the working capital adjustment, which in turn is to be computed as per the OECD guidelines. The assessee has filed the computation of working capital adjustment to the results of the comparables before us and the same were also filed before the Assessing Officer and some adjustment has been allowed on account of working capital adjustment by the Assessing Officer, while giving effect to the order of CIT(A). However, the errors pointed out by the assessee vide different communications to the Assessing Officer / TPO and the concerned Commissioner, have not been carried out till date. Accordingly, we direct the Assessing Officer to complete the exercise of working capital adjustment to be allowed to the assessee within a period of 45 days from the date of this order, after affording reasonable opportunity of hearing to the assessee. Upholding the order of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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