2018 (5) TMI 1928 - AT - Income Tax

TP Adjustment - granting working capital adjustment - As per revenue as complete informations were not provided by the assessee, therefore, it was not possible to allow any working capital adjustment - HELD THAT - DRP directed the TPO to allow working capital adjustment in accordance with the decisions of the various benches of the Income Tax Appellate Tribunal. In the present case, no contrary decision was brought to our knowledge by the department. It is also noticed that the TPO allowed the working capital adjustment vide order dated 28.12.2015 after considering the submissions of the assessee who provided detail computation of margin of comparables which is evident from order passed by the TPO. We, therefore, considering the totality of the facts, do not see any merit in this ground of the departmental appeal. - Decided against revenue

Summary

Issues:
Appeal against order passed by AO u/s 143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961.
Validity of working capital adjustment granted by the ld. DRP in the case of the assessee.

Analysis:
1. The department filed an appeal against the order dated 30.12.2015 passed by the AO under section 143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961. The main contention of the department was regarding the directions given by the ld. DRP for granting a working capital adjustment.

2. The facts of the case revealed that the assessee initially declared an income of ?1,75,29,130/-, which was later scrutinized due to transactions with associated enterprises. The TPO proposed an adjustment of ?3,42,12,432, leading to the AO passing a draft assessment order. The assessee objected before the ld. DRP, specifically citing the denial of working capital adjustment.

3. The ld. DRP, in its observations, noted that the TPO had denied the working capital adjustment due to unreliable data provided by the assessee. However, the ld. DRP emphasized the common practice of companies adjusting margins to cover interest costs and recover working capital implicitly. Citing various judicial decisions, the ld. DRP directed the TPO to make the working capital adjustment for comparability, urging the assessee to provide accurate data.

4. The department, now in appeal, argued that due to incomplete information provided by the assessee, no working capital adjustment should be allowed. Conversely, the counsel for the assessee strongly supported the order of the ld. DRP, highlighting the necessity of the adjustment for comparability.

5. Upon considering the submissions of both parties and the available material, it was noted that the ld. DRP's direction was in line with decisions of various benches of the Income Tax Appellate Tribunal. No contradictory decision was presented by the department, and the TPO eventually allowed the working capital adjustment after receiving detailed computations from the assessee. Consequently, the appeal of the department was dismissed on 17/05/2018.