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TMI Blog2018 (1) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... as a difference in the levels of working capital employed by it vis-à-vis the comparables which affected price and consequently profit, DRP categorically stated that holding of inventories, trade debtor/ creditors, trade receivable/payable has always an interest cost. Therefore there is definitely a connection in the level of working capital and the price at which one is willing to offer its services/goods. The ld. DRP held that the rejection of the assessee’s claim of working capital adjustment by the TPO was not tenable. As regards to the observation of the TPO that monthly data of comparables as well as segmental data was not available for making reasonably accurate working adjustment. The ld. DRP directed the TPO that average of open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant financial year) as the interest rate] against the TPO order dated 16.01.2014 passed u/s 92CA(3) for A.Y. 2010-11. 3. The appellant craves for the permission to add, alter and submit additional ground in the course of the appellant proceedings before the Hon ble ITAT. 3. From the above grounds, it is gathered that only grievance of the department relates to the direction of the ld. DRP to the TPO to give working capital adjustment. 4. Facts related to this issue in brief are that the assessee filed its return of income on 28.09.2010 declaring income at ₹ 19,32,894/-. Later on, the case was selected for scrutiny. The assessee filed the Transfer Pricing Report in Form 3CEB. The AO by considering the intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the ld. DRP was relating to the denial of adjustment on account of working capital while working out the average margins of the comparable. The gist of the submissions by the assessee before the ld. DRP was as under: * No adjustment have been undertaken by the ld. AO to the margins of the comparables selected by the TPO to account for differences in the working capital and risk profile of the companies and the taxpayer. * In this regard, it is submitted that the Indian transfer pricing regulations Rule 10B(3) read with Rule 10B(1)(e) recognize that appropriate adjustments should be made to eliminate material effect of differences between the international transactions and the comparables transactions to establish comparability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the present case, while comparing the margins of tested party with that of the comparables, adjustment be made for working capital for which the reliable data is to be provided by the taxpayer. 8.2.2 The TPO has stated that the taxpayer has not demonstrated that there is a difference in the levels of working capital employed by it vis-a-vis the comparables which affect prices and consequently profits. With regard to this objection, as discussed above that holding of inventories, trade debtor/ creditors, trade receivable/payable has always an interest cost. Therefore there is definitely a connection in the level of working capital and the price at which one is willing to offer its services/goods. Hence, this ground of rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instead of taking into account only trade creditors the taxpayers also take into account credits received from various group concerns or loans etc Similarly, creditors on account of capital items are also observed to be included in many cases. Since, this practice is not in accordance with the Guidelines, the TPO and the taxpayer are directed to take following into consideration while working out the working capital adjustment:- a) compute the average of opening and closing balances of inventories, trade debtors/receivables, trade creditors/payables of both the tested party and the comparables, on revenue account only. b) work out the net working capital ratio (in percentage) after dividing the net working capital by operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the ITAT Pune Bench B , Pune in the case of Demag Cranes Components (India) Pvt. Ltd. Vs DCIT, Circle-1(2), Pune. 9. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it appears that the assessee furnished the calculation for adjustment on account of working capital before the ld. DRP who after considering the submissions of the assessee and the guidelines provided by OECD for the computation of working capital adjustment directed the TPO to do needful. As regards to the objection of the TPO that the assessee had not demonstrated that there was a difference in the levels of working capital employed by it vis- -vis the comparables which affect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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