TMI Blog2016 (6) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... rant working capital adjustment on the basis of certain calculation - Decided against revenue - ITA No.812/PN/2013 - - - Dated:- 27-4-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For the Petitioner : Shri Rajendra Agiwal For the Respondent : Smt. Mini Verma ORDER PER R.K.PANDA, AM : This appeal filed by the Revenue is directed against the order dated 03-01-2013 of the CIT(A)-IT/TP, Pune relating to Assessment Year 2005-06. 2. Grounds of appeal No. 1, 7 and 8 being general in nature are dismissed. 3. Grounds of appeal No. 2,3, and 4 by the revenue read as under : 2. The CIT(A) erred on facts and in law in observing that the TPO s action of changing the Turnover Filter was without any basis. 3. The CIT(A) erred on facts and in law, in accepting the assessee s contention that, the TPO, before concluding with his own set of comparables based on a certain turnover criteria, erred in law in not affording an opportunity of being heard to the appellant, when the facts as reported in TPO order locate the contrary. 4. The CIT(A) erred on facts and in law in not appreciating that out of the set of 42 comparables identified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee. The TPO noted that the assessee in its TP study report has applied the following elimination criteria : 1. Sales 1 Crore and sales 100 crores 2. Reasonable sizeable product based revenue (more than25% of total revenue) 3. Materially different line of activity 4. Very high/low sales and profits as compared with your company 8. After scrutinizing the comparable companies and keeping in mind the elimination criteria applied by the assessee the TPO applied the turnover filter of ₹ 1 crore to ₹ 20 crores and proposed the following companies for the purpose of comparison : 1. VJIL Consulting Ltd. 2. Indus Networks Ltd. 3. Network Programs (India) Ltd. 4. Tutis Technologies Ltd. 5. Kedia Infotech Ltd. 6. E Star Infotech Ltd., 7. Sterling International Enterprises Ltd. 9. The TPO again scrutinized the above mentioned companies by applying the elimination filter in the show cause notice and applied the following filters : 1. Sales 1 crores and sales 20 crores 2. Reasonable sizeable product based revenue (more than 25% of total revenue) 3. Materially different line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the TPO without any basis and without providing any reason has changed the filter to ₹ 1 crore to ₹ 20 crores which is incorrect. The TPO had not provided any rationale and opportunity to the assessee. It was further argued that in subsequent assessment year, i.e. 2006-07 the assessee had applied turnover filter of ₹ 1 crore to ₹ 100 crores on a turnover of ₹ 17.47 crores which was accepted by the TPO and the DRP. Relying on the following decisions it was argued that the action of the TPO in applying the turnover filter of ₹ 1 crore to ₹ 20 crores is incorrect : 1. Brintons Carpet Asia Pvt. Ltd. Vs. DCIT 2. ACIT Vs. Fiat India Pvt. Ltd. (2010-TII-30-ITAT-Mum-TP) 3. Genisys Integrating Systems (India) Pvt. Ltd. Vs. DCIT (ITA No.1231/Ban/2010) 14. Based on the arguments advanced by the assessee the Ld.CIT(A) allowed the claim of the assessee by observing as under: 2.2.3 I have gone through the order passed by the learned TPO. I did not find any discussion in the order as to why turnover filter was changed and the basis of the lower turnover filter adopted by the learned TPO. In absence of any discussion, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find the assessee in the instant case has adopted the turnover filter of ₹ 0.10 crore to ₹ 10 crores which was revised to ₹ 1 crore to ₹ 100 crores during the TP assessment proceedings. We find the TPO applied the turnover filter of ₹ 1 crore to ₹ 20 crores as reasonable under the fact and circumstances of the case. The relevant observation of the TPO at Para 7.3 in page 20 of the order for adopting such filter is as under : 7.3 The next issue is of admitting the extra comparables. This is because the mistake from the assessee side for rejecting the comparables above ₹ 10 crore. It is seen that earlier the assessee has considered the comparable companies having a turnover more than ₹ 10 lakhs and less than ₹ 10 crore. The turnover of the assessee during the year is ₹ 7.8 crore. The TPO has rejected the companies having turnover below ₹ 1 crore. Therefore, the companies which were considered for the final analysis were having turnover in the range of ₹ 1 crore to ₹ 10 crore. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a turnover of ₹ 1.00 core to 200 crores have to be taken as a particular range and the assessee being in that range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study. 21. We find following the above decision the Ld.CIT(A) directed the TPO to adopt the turnover filter of ₹ 1 crore to ₹ 100 crores. Further, the submission of the Ld. Counsel for the assessee that in the subsequent year the turnover filter criteria of ₹ 1 crore to ₹ 100 crores shown by the assessee has been accepted by the TPO and the DRP could not be controverted by the Ld. Departmental Representative. Further, we do not find any merit in the grounds raised by the revenue regarding certain observations of the CIT(A). Under these circumstances, we do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the grounds raised by the revenue are dismissed. 22. Grounds of appeal No.5 and 6 by the revenue are as under : 5. The CIT(A) erred on facts and in law in allowing working capital adjustment to the profit level indicator of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned AO is directed to grant working capital adjustment to the Appellant on the basis of average credit/debit period for the year and commercial rate of interest. 25. Aggrieved with such order of the CIT(A) the revenue is in appeal before us. 26. After hearing both the sides, we do not find any infirmity in the order of the CIT(A). Admittedly, the assessee has not asked for working capital adjustment before the TPO. However, before CIT(A) the assessee made an alternate claim which was allowed by him. This ground by the assessee in our opinion is a legal issue. The Coordinate Benches of the Tribunal are taking consistent view that the assessee is entitled to working capital adjustment for computing profit margins of transactions. 27. We find the Tribunal in assessee s own case for A.Y. 2007- 08 while allowing the claim of working capital adjustment has restored the issue to the file of the DRP for fresh adjudication. The relevant observation of the Tribunal at para 15 of the order reads as under : 15. Ground No. 9 Adjustment for working capital Erred in not granting any adjustment on account of difference in level of working capital employed by the Appellant and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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