2018 (3) TMI 1816 - AT - Income Tax

Addition on account of transfer pricing adjustment - working capital adjustment - HELD THAT - During the course of hearing the assessee at the very outset stated that if only working capital adjustment is to be done then the average profit margins of the comparables vis- -vis operating profit margins of the assessee would be in the range of 5% and no adjustment is required. It was also stated that in the subsequent years the TPO had himself allowed the working capital adjustment while working out the average profit margins of the comparables. DR submitted that the matter may be restored to the TPO for verification of the calculations furnished by the assessee for the working capital adjustment. Assessee did not object if the matter be restored to the TPO/AO for verification of the working capital adjustment and to allow the same as has been done by the TPO in subsequent assessment years. We therefore after considering the aforesaid submissions of both the parties set aside this issue back to the file of the TPO/AO for verification of the calculations given by the assessee for the working capital adjustment and decide the issue for claim of the assessee on account of working capital adjustment on the same line as has been done in the subsequent assessment years.

Summary

Issues:
Transfer pricing adjustment of ?79,67,93,400.

Analysis:
The appeal was filed by the department against the order of the ld. CIT(A)-XXIX, New Delhi, challenging the deletion of the addition of ?79,67,93,400 made by the TPO/AO on account of transfer pricing adjustment. The assessee, a listed Indian Public Limited Company engaged in manufacturing/sale of consumer durables, reported 12 international transactions with its Associated Enterprises (AE) for benchmarking. The TPO recommended the addition based on the difference between the margin from ALP of these transactions. The AO added the amount after the assessee's submissions were considered, stating that the TPO's decision to club manufacturing and trading functions for margin computation was valid. The ld. CIT(A) rejected the claim for separate benchmarking but observed that adjusted margins of comparables showed higher profits than the assessee. The ld. CIT(A) deleted the addition, considering the working capital adjustment and comparables' profit margins. The department appealed, and during the hearing, both parties agreed to restore the matter to the TPO/AO for verification of working capital adjustment. The issue was set aside for reconsideration, and the appeal of the department was allowed for statistical purposes.