2022 (3) TMI 650 - AT - Income Tax

Rectification of mistake - CIT(A) completely rejecting the working capital adjustment while determining the arm's length price for the SWD services provided by the Assessee which was granted by the Ld. AO/ Ld. TPO even though on a restricted basis. - whether CIT(A) erred in disregarding the fact that working capital adjustment is an economic adjustment which would enhance the comparability analysis and ought to be carried out for the purposes of comparability analysis? - HELD THAT - We have carefully gone through the log book maintained by us and find that there is no whisper about these grounds during the hearing of the appeal, as such the Tribunal recorded a finding in para 29 of its order that no other grounds were pressed in the TP matters, other than what is adjudicated by the Tribunal in its order. Being so, we do not find any infirmity in the order of the Tribunal on this issue. Accordingly, the MP filed by the assessee is dismissed. Comparability of KALS Information Systems Ltd - The Tribunal committed an error in giving finding in para 43 of its order. Accordingly, para 43 of the order of the Tribunal dated 24.11.2021 is modified and substituted to read as follows - 43. Accordingly, this comparable to be excluded in the list of comparables. Except the above, there is no change in the order of the Tribunal dated 24.11.2021.

Summary

Issues Involved:
1. Rectification of order regarding working capital adjustment for SWD services.
2. Inclusion/exclusion of a company in the list of comparables.

Analysis:

Issue 1: Rectification of order regarding working capital adjustment for SWD services:
The assessee filed miscellaneous petitions seeking rectification of the Tribunal's order regarding the non-grant of working capital adjustment in determining the arm's length price for SWD services. The assessee argued that the working capital adjustment is essential for comparability analysis and should not have been completely rejected by the CIT(A). The Tribunal noted that the assessee had raised these grounds in its written submissions but did not press the issue during the hearing. The Tribunal found no mention of these grounds in the log book maintained during the appeal hearing, leading to the dismissal of the assessee's petition for rectification. The Tribunal held that since the grounds were not pressed during the hearing, there was no infirmity in the original order.

Issue 2: Inclusion/exclusion of a company in the list of comparables:
In the revenue's appeal, the comparability of a specific company, KALS Information Systems Ltd., was contested. The assessee argued for the exclusion of this company from the list of comparables, contrary to the position taken by the ld. DR. The Tribunal initially mentioned conflicting decisions in its order, stating that the company should both be included and excluded from the list of comparables. Upon review, the Tribunal acknowledged the error in its finding and modified the order to exclude the company from the list of comparables based on the precedent set in an earlier case. The Tribunal allowed the miscellaneous petition related to this issue while maintaining the rest of the original order unchanged.

In conclusion, the Tribunal addressed the issues raised by the assessee regarding working capital adjustment and the inclusion/exclusion of a company in the list of comparables. The Tribunal dismissed one miscellaneous petition and allowed the other, rectifying the error in the original order related to the comparability of KALS Information Systems Ltd.