TMI Blog2013 (9) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... ed having regard to arm s length price. Section 92CA prescribes various methods such as comparable uncontrolled pricing (CPU). Re-sale pricing method, cost plus method, profit split method and transactional net margin method etc. The Assessing Officer during the assessment proceedings referred the issue of determination of arm s length price to the Transfer Pricing Officer (TPO). The TPO, therefore, issued notice u/s 92C to the assessee asking the assessee to give details of transfer pricing study conducted by it to compute arm s length price of the international transaction. The assessee in the transfer pricing study selected TNMM method as the most appropriate method for benchmarking the international transaction with respect to uncontrolled transactions. The assessee selected 14 comparables and using 11 comparables for financial year 2003-04 and 2004-05 arrived at a mean PLI of 6.36%. The assessee chosen itself as the tested party and contended that PLI earned by assessee was at 14.76% and, therefore, it was submitted that transaction with associate enterprises was at arm s length price. In the TPO order the Transfer Pricing Officer has drawn an adverse inference with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent from the working capital requirements of comparables. Our attention was invited to rule 10B relating to determination of arm s length price u/s 92C and it was submitted that assessee was covered by sub clause e of Rule 10B as it had adopted transaction net margin method. Our attention was invited to sub clause 3 of clause C of Rule 10B and it was submitted that the net profit margin earned by comparables in uncontrolled transactions has to be adjusted to take out effect of difference in working capital requirements of comparables viz-a-viz assessee. Our attention was invited to page 395 to 396 of paper book wherein a note relating to working capital adjustment requirement to be made in the case of assessee was placed. Our attention was also invited to page 7 of paper book where relevant page of OECD transfer pricing guidelines were placed and our specific attention was invited to para 1.45 to para 1.47. Relying upon above guidelines of OECD, it was argued that assessee was working in a risk free atmosphere and was also getting advance payments. Therefore, risk adjustment and working capital adjustment was needed to be done to arrive at comparable figures. Our attention was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hyd/2009 decided by Hyderabad Bench of Tribunal. 8. Relying upon second ground, it was contended that it was a covered matter by the decisions of CIT vs. BSES Rajdhani Powers Ltd. reported in ITA NO. 1266/2010 and DCIT Vs. Datacraft India Ltd. reported in 133 TTJ (Mumbai) (SB) 377 and it was contended that the claim of assessee for depreciation on computer peripherals as per various courts decisions was correct and assessee was eligible for depreciation @ 60% on such peripherals. 9. The Ld. Departmental Representative on the other hand submitted that assessee is fully dependant on its AE and, therefore, was exposed to a greater risk than a normal enterprise as the assessee had work for only from one client that is its parent holding company and, therefore, whatever risk its holding company was taking were also fully applicable to the assessee company. Continuing his arguments the Ld. Departmental Representative submitted that there were different risk on account of human error, social risk etc. and when business is diversified and business is obtained from various clients risk is reduced comparably as there are more clients so failure or non obtaining of work from one or two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eivable in case of a company would mean relatively lower profits. Therefore, the companies could be considered fully comparable if they hold the same level of account receivable and account payable. Rule 10(2) (d) also provides that the comparability has to be judged with respect to various factors including the market conditions, geographical conditions, cost of labour and capital in the market. Accounts receivable/ payable effect the cost of working capital. A company which has a substantial amount blocked with the debtors for a long period cannot be fully comparable to the case which is able to recover the debt promptly. The plea of the AR that the assessee has been receiving advance payments as compared to its comparables. Which were having sundry debtors deserves merits in view of the facts and circumstances of the present case and, therefore working capital adjustment should have been given to the assessee. 13. Moreover, it is observed that Assessing Officer himself had given working capital adjustment in the case of assessee itself in the assessment year 2008-09. Therefore, keeping in view the facts and circumstances of the present case and on the basis of various judi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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