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TMI Blog2024 (6) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... on to grant working capital adjustment to the assessee in accordance with law to be on par with comparable companies. Credit for Self Assessment tax and Regular Assessment taxes - The Appellant has filed rectification application on 11.01.2024 but the same is not disposed till date. The AO is directed to verify and grant the same - SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Shri Narendra Kumar Jain, Advocate For the Respondent : Shri Subhash K.R., CIT(DR)(ITAT), Bengaluru ORDER Per Laxmi Prasad Sahu, Accountant Member This appeal is filed by the assessee against the DIN Order No. ITBA/AST/S/143(3)/2023-24/1058659115(1) dated 11.12.2023 of the Assessing Officer passed u/s. 143(3) r.w.s. 254 r.w.s. 144B of the Income-tax Act, 1961 [the Act] for the AY 2015-16 in the second round of proceedings before the ITAT. The Tribunal in IT(TP)A No.2309/Bang/2019 vide order dated 28.9.2020 set aside the issue of working capital adjustment to the file of AO/TPO. Subsequently, the TPO discussed the issue in para 4.2 to 4.2.4 and rejected the claim of assessee to allow working capital adjustment and made TP adjustment of Rs.1,08,78,064 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital risks unlike comparable companies. The Appellant has tabulated below various ratios for comparison: Ratios Acme Cleantech Solutions Limited Nu Tek India Limited Appellant Debt-to-Capitalization Ratio 0.05% 0.08% 0.00% Accounts Payable Turnover Ratio (Times) 3.18 0.89 6.70 Accounts Receivables Turnover Ratio (Times) 2.81 1.33 4.77 Inventory Turnover Ratio (Times) 3.77 171.56 10.34 2.4 The variation in ratios reflect that all companies adopt different funding model and have different working capital cycle. This difference deserves an adjustment to iron out the differences between Appellant and Comparables to achieve higher level of comparability. 2.5 The Appellant further submits that it has given detailed submissions against each of the reasons given by the TPO for rejection of working capital adjustment at pages 137 to 153 of PB-1. The DRP has not considered submissions of the Appellant and gave general reasons to reject working capital adjustment. No defect or mistake in working capital adjustment of the Appellant is highlighted. Thus, rejection of working capital adjustment by TPO/DRP is without basis. 2.6 The Appellant places reliance on the decision of Honourable Bangalo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... throughout the year. (ii) Segmental working capital is not disclosed in the annual reports of companies engaged in different segments and therefore proper comparison cannot be made. (iii) Disclose in the balance sheet does not contain break up of trade and non- trade debtors and creditors and therefore working capital adjustment done without such break up would result in computation being skewed. (iv) Cost of capital would be different for different companies and therefore working capital adjustment made disregarding this different based on broad approximations, estimations and assumptions may not lead to reliable results. 16. The CIT(A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT(A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso not sustainable. 17. In the light of the above discussion we are of the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO's working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 173 192 of the Assessee's paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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