TMI Blog2015 (10) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... of its transactions entirely with its associate enterprises on the basis of an Agreement, under which it is entitled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 appeal:- On the facts and circumstances of the case and in law 1. The learned Commissioner of Income Tax (Appeals) - I Pune erred in rejecting some grounds as academic and not adjudicating the same. 2.1 The learned Commissioner of Income Tax (Appeals) - I Pune erred in confirming the rejection of some of the companies considered as comparable by the Appellant Company on the ground of functional differences (different business activities) as well as in some cases on the ground of being loss making companies . 2 . 2 He erred in not following the ratio of the decision of the Special Bench of ITAT - Chandigarh Bench in the case of DCIT v Quark Systems (P) Ltd (2010) 38 SOT 307 (Chd)(SB) wherein the ITAT has held that merely because a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t he Associated enterprise of the Appellant Compan y was significantl y 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 delete any or all of the Grounds of Appeal. 5. In the Cross appeals filed by the Revenue and the assessee, the issue raised is against the transfer pricing adjustment proposed by the Transfer Pricing Officer (TPO) and the relief granted by the CIT(A) in respect of working capital adjustment. 6. Both the Revenue and the assessee have raised several grounds of appeal, but the learned Authorized Representative for the assessee pointed out that in case the working capital adjustment is allowed to the assessee by the Assessing Officer / TPO, then the margins shown by the assessee would be within benefit of +/- 5% of the average mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viders 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 and another set of comparables was proposed to be adopted for working out the arm's length price of the assessee. After considering the submissions and objections of the assessee, the TPO observed that the business of the companies which were earlier rejected, were not comparable to the business of the assessee and the companies which were retained by the TPO as comparables were held to be engaged in the similar type of activities as that of the assessee. Further, the plea of the assessee regarding adopting of revised operating margins of 20.13% to be adopted for the PLI, was not accepted as the entire cost of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 within +/- 5% of the margins of the assessee company, then no adjustment would be required. The Revenue is aggrieved by the aforesaid directions of the CIT(A). 10. It was pointed out by the learned Authorized Representative for the assessee that the Assessing Officer consequent upon passing of the order of CIT(A), had granted certain adjustments, against which the assessee filed a rectification application on 16.07.2012 pointing out the errors in the working capital adjustment. Another rectification application was filed before the Assessing Officer on 10.09.2013. The assessee has enclosed the above said communication at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CIT(A) with regard to the allowability of working capital adjustment, we dismiss the grounds of appeal raised by the Revenue. In view of the concession of the learned Authorized Representative for the assessee that in case the working capital adjustment is allowed to it, then the margins shown by the assessee in respect of international transactions with its associate enterprises was within +/- 5% of the margins shown by the list of comparables, we do not adjudicate the issues raised in the appeal filed by the assessee. 12. In the result, both the appeals of the Revenue and the assessee are dismissed. Order pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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