Income Tax Appellate Tribunal - Bangalore
M/S. Lenovo India Private Limited, ... vs Deputy Commissioner Of Income Tax, ... on 13 March, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH : BANGALORE
BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND
Ms. PADMAVATHY S, ACCOUNTANT MEMBER
IT(TP)A No.885/Bang/2022
Assessment year : 2018-19
Lenovo India Private Ltd., Vs. The Deputy Commissioner
Ferns Icon, Level 2, of Income Tax,
Doddenakundi Village, Circle 4(1)(1),
Marathahalli Outer Ring Road, Bangalore.
Marathahalli Post, K R Puram Hobli,
Bangalore - 560 037.
PAN: AABCI 3372H
APPELLANT RESPONDENT
Appellant by : Shri Padamchand Khincha, CA
Respondent by : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru.
Date of hearing : 28.02.2023
Date of Pronouncement : 13.03.2023
ORDER
Per Padmavathy S., Accountant Member
This appeal is against the order of DCIT, Circle 4(1)(1), Bangalore dated 29.7.2022 u/s 143(3) r.w.s. 144C(13) of the IT Act for the assessment year 2018-19.
2. The assessee is a company registered under the Companies Act, 1956 and is primarily engaged in the business of trading, manufacture and sale of desktop, laptop, servers and smart phones. The assessee imports personal computers from its Associated Enterprise (AE) and resells the IT(TP)A No.885/Bang/2022 Page 2 of 17 same in India via its distribution channels. The assessee also assembles PCs in India using components it imports from AEs and subsequently sells them in Indian markets.
3. The assessee filed its return of income for AY 2018-19 on 29.11.2018 declaring a total income of Rs. NIL. The case was processed u/s. 143(1)(a) on 13.11.2019 by prima facie adjustment of Rs.24,83,81,027. Subsequently the case was selected for complete scrutiny under CASS and notices were duly served on the assessee. The case was referred to TPO to determine the arm's length price (ALP) of the international transactions the assessee has entered into with its AE. The TPO made the following adjustments :-
(1) On account of excess AMP expenses - Rs.101,11,98,209 (2) Administrative & Business Support services - Rs.1,54,04,913 (3) Sales facilitation services - Rs.1,14,54,439
4. The AO passed the draft assessment order incorporating the above TP adjustments. Aggrieved, the assessee filed its objections before the DRP.
5. The DRP gave marginal relief to the assessee whereby the TP adjustment was recomputed at Rs.103,06,26,654. The DRP also gave a direction with regard to the prima facie adjustment made u/s. 143(1)(a) and accordingly the said addition was deleted. The AO passed the final assessment order against which the assessee is in appeal before the Tribunal.
6. The issues contended through various grounds of appeal raised by the assessee are summarised as under:-
(i) Ground No.1 and 32 to 34 - general.
IT(TP)A No.885/Bang/2022
Page 3 of 17
(ii) Ground Nos.2 to 22 - TP adjustment on account of excess
AMP expenditure.
(iii) Ground Nos. 23 to 31 - TP adjustment in sales facilitation
services segment and administrative and business support services segment.
TP adjustment on account of excess AMP expenditure
7. The Assessee is engaged in the business of manufacturing and distribution of desktop, laptop, servers, and smartphones. During the relevant previous year, the Assessee incurred expenditure in connection with campaigning, depicting features of new products, providing information to the public about details of product, its specification etc. The aforesaid advertisement and business promotion activities undertaken by the Assessee are specific to the products sold in India. Given that the selling of the products in India is the function of the Assessee, there are no approvals sought by the Assessee in connection with the incurrence of said expenses which influences the volume of sales of the Assessee. The advertisement contents are decided by the Assessee and the said expenses do not require any approval from its AEs. The aforesaid activities are primarily to promote the business of Assessee and the same is done to influence the volume of sales of the Assessee.
8. The TPO held as under in respect of the above AMP adjustment:-
• Assessee has not confined itself to distribution of trading goods but has performed additional functions in the form of AMP. Therefore, the Company needs to be adequately compensated for such additional functions. (Page 249 of Appeal Set) • RPM analysis carried out by the Assessee in the TP Doc is flawed as AMP is not captured while calculating gross margin. (Page 249 of Appeal Set) IT(TP)A No.885/Bang/2022 Page 4 of 17 • Ratio of AMP to sales incurred by 09 comparable companies selected by the Assessee for benchmarking trading segment is much lower than the ratio of AMP to sales as incurred by Lenovo India thereby Ld. TPO is of the view that Assessee has incurred much higher AMP expenditure than the industry average. (Page 250 of Appeal Set) • The excessive AMP expense constitutes an international transaction. This additional function of building marketing intangible for the AE should have been reimbursed by AE to the Assessee with a markup. (Page 250 of Appeal Set)
9. The DRP has upheld the analysis of the TPO stating that the cost of AMP incurred by the assessee has benefitted AEs and accordingly AMP is an international transaction.
10. The ld DR submitted that the AMP expenses need to be treated as separate international transaction and supported the orders of the lower authorities. Without prejudice the ld DR submitted that the bench marking the trading segment should be considered afresh and accordingly requested for this issue to be remitted back to the TPO.
11. The ld. AR submitted that the issue is covered by the order of coordinate Bench in assessee's own case for AY 2017-18 in IT(TP)A No.195/Bang/2022 dated 31.1.2023.
12. We heard the parties and perused the material on record. We notice that the coordinate Bench in assessee's own case has considered the issue of adjustment made towards excess AMP expenses and held that -
"21. We heard the rival submissions and perused the material on record. For the year under consideration the net profit margin of the assessee in Trading Segment is 1.19% and the net profit margin of the comparable companies in 35th percentile to 65th percentile range is 0.13% to 1.48% (page 2084 of paper book Vol III). Since the margin of the assessee is within this range, the assessee had concluded that the price charged with respect to the IT(TP)A No.885/Bang/2022 Page 5 of 17 Trading Segment is within arm's length. We notice that no adverse inference drawn by the TPO in respect of the Trading segment results in the order passed under section 92CA and has directly proceeded to treat AMP expenses as international transaction. This in our view mean that the TPO has accepted the entity level margins earned by the assessee with respect to Trading Segment but proceeded to make TP adjustment on AMP expenses. The Hon'ble Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118 held that once the revenue accepts the entity level margins as per the most appropriate method, it would be inappropriate to treat a particular expenditure as a separate international transaction. It was held that such an exercise would lead to unusual and absurd results. Relevant observations from the above decision in this context are as under:-
"101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/ segregation, it would as noticed above lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the inter-linked transaction. This would be also in consonance with Rule 10B(J)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the com parables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible"
22. We also see merit in the submission of the ld AR that the ratio laid down by the decisions of the coordinate bench of the Tribunal in assessee's own case for AY 2012-13 to 2015-16 is that that if the net profit margin meets the Arm's length price, IT(TP)A No.885/Bang/2022 Page 6 of 17 then no separate addition needs to be made. Considering the fact that no adverse inference is drawn by the TPO in respect of the Trading segment which means that the TPO has accepted the overall margins of the said segment and respectfully following decision of the Hon'ble Delhi Court in the case of Sony Ericsson (supra) and the ratio laid down by the coordinate bench in assessee's own case, we direct the TPO to delete the adjustment made towards the trading segment.
23. Since we have adjudicated the issue of adjustment made towards AMP expenses as above, the other contentions raised in this regard by the assessee with respect to the issue through various grounds have become academic and accordingly left open."
13. For the year under consideration, we notice that the TPO has not made any adjustment in the trading segment and also in the manufacturing segment in which the AMP expenses are included as part of operating cost. In our view, this would mean that there is no adverse inference drawn by the TPO in respect of the arm's length price in the trading segment in the order passed u/s. 92CA and has accepted the entity level margins earned by the assessee with respect to trading segment. Therefore, respectfully following the above decision of the coordinate Bench, we hold that no adjustment is warranted separately with respect to AMP expenses in the case where the TPO has accepted the overall margin of the trading segment which included the AMP expenses as part of the operating cost. Accordingly, we delete the adjustment made by the TPO.
14. Since we have adjudicated the issue of adjustment made towards AMP expenses as above, the other contentions raised in this regard by the assessee through various grounds have become academic and accordingly left open.
IT(TP)A No.885/Bang/2022 Page 7 of 17
15. With respect to the adjustment made in the sales facilitation services segment and administrative and business support services, the assessee raised grounds No.23 to 31. However, during the course of hearing, the ld. AR submitted that if ground Nos.29 & 30 which read as under, are adjudicated, the rest of the grounds will not be pressed:-
"29. The Ld. TPO has erred in complete disregard to the Hon'ble DRP direction by not including the comparable MCI Management India Private Limited.
30. The Ld. TPO has erred in computing the margin for PR Pundit Public Relations Private Limited & Marketing Communication & Advertising Ltd."
16. The ld AR submitted with regard to MCI Management India Private Limited that the TPO while passing the order giving effect, did not consider the directions given by the DRP. The ld. AR accordingly prayed for remitting the issue back to the TPO for considering the DRP directions properly and recomputed the ALP adjustment in these segments.
17. The ld DR relied on the order of the TPO.
18. We notice that the DRP has given the following directions with regard to the above two comparables.
"MCI Management India Private Limited: Having considered the submissions. we note that this company was selected by the assessee as functionally comparable in its TP report. However, it is seen that the TPO has rejected this company on the ground that the company fails persistent loss filter. Having perused the annual reports of the company, we note that during last four financial years, it is having losses during the FY2016-17 only. Therefore, the company cannot be rejected as comparable for incurring loss during the F.Y. 2016-17 alone."
We accordingly remit this issue back to the TPO to consider the directions of the DRP while arriving at the ALP.
IT(TP)A No.885/Bang/2022 Page 8 of 17
19. With regard to the TPO considering incorrect margins, The ld. AR submitted that -
(i) PR Pundit Public Relations Private Limited The Ld. TPO has erred in computing the margin of the comparable. The correct margin of the said comparable is 15.47%. The rectified OP/OC computation is 15.47% from the records available, i.e., Annual report. Below is the computation for the rectified margin from the Annual Report:
Particulars FY 2017-18 FY 2016-17 FY 2015-16 Operating Revenue -- A 170,565,374 146,880,529 119,765,052 Total Operating 151,516,268 128,868,675 99,219,070 expenditure -- B Operating profit (A-B) 19,220,565 18,495,608 20,859,519 Margin on cost 12.70% 14.41% 21.09% Weighted Average Margin - 15.47% Unadjusted on cost
(ii) Marketing Communication & Advertising Limited The Ld. TPO has erred in computing the margin of the comparable. The correct margin of the said comparable is 9.53%.
Below is the computation for the rectified margin from the Annual Report:
Particulars FY 2017-18 FY 2016-17 FY 2015-16 Operating Revenue - A 3,685,279,465 2,105,446,528 1,719,562,718 Total Operating 3,372,771,849 1,910,568,479 1,573,375,365 expenditure --B Operating profit (A-B) 312,507,616 194,878,049 146,187,353 Margin on cost 9.27% 10.20% 9.29% Weighted Average Margin - 9.53% Unadjusted on cost IT(TP)A No.885/Bang/2022 Page 9 of 17
20. Accordingly, it was prayed to direct the Ld. TPO to rectify the above Arithmetical errors in computation of the weighted average of operating margin to operating cost ratio (`OP/OC') margin of the company.
21. We, after considering the submissions, remit the issue back to the TPO to consider the correct margins of the above companies.
22. Ground No.31 is with regard to working capital adjustment. In this regard, the ld. AR submitted that the investment in working capital requires capital and operating assets and an uncontrolled entity is expected to earn a market rate of return on that required capital independent of servicdes that it provides. However, the amount of capital required to support these services varies greatly because the level of inventory, debtor and creditor measured as percentage of total cost varies. It is further submitted that there is an effect on profit from investing in different levels of working capital due to differences reflected in cash collection cycle. The ld. AR therefore prayed that a suitable adjustment for working capital difference between the assessee and the comparables is warranted. The ld AR relied on the following decisions in this regard;-
(i) EIT Services (I) P. Ltd. - ITA nO.2498/Bang/2019
(ii) Philipps Software Centre P. Ltd. v. ACIT [2018] 26 SOT 226
(iii)Capegemini India P. Ltd. v. ACIT [2013] 27 ITR (Trib) 74
23. We heard the parties and perused the material on record. It is a settled position that working capital adjustment need to be given while computing the ALP and the coordinate Bench has been consistently holding the view in various decisions.
24. We direct the Ld.AO/TPO to compute the working capital adjustment while computing the operating margin of the comparables following the decision of Coordinate Bench of this Tribunal in case of Huawei IT(TP)A No.885/Bang/2022 Page 10 of 17 Technologies India P. Ltd. in IT(TP)A No.1939/Bang/2017 dated 31.10.2018, wherein, it was held as under:
"10. The next grievance projected by the Assessee in its appeal is with regard to the action of the CIT(A) in not allowing any adjustment towards working capital differences. On this issue we have heard the rival submissions. The relevant provisions of the Act in so far as comparability of international transaction with a transaction of similar nature entered into between unrelated parties, provides as follows:
Determination of arm's length price under section 92C . 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :---
(a) to (d).............
(e)transactional net margin method, by which,--
(i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by 'the enterprise or having regard to any other relevant base;
(ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;
(iii) the net profit margin referred to in sub-clause (ii) arising in comparable. uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;
(iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);
(v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the IT(TP)A No.885/Bang/2022 Page 11 of 17 international transaction [or the specified domestic transaction];
(f)......
(2) For the purposes of sub-rule (1), the comparability of an international transaction [or a specified domestic transaction] with an uncontrolled transaction shall be judged with reference to the following, namely:--
(a) the specific characteristics of the property transferred or services provided in either transaction;
(b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;
(c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;
(d) conditions prevailing in the markets.in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs. of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction [or a specified domestic transaction] if -
(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or
(ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.
1. A reading of Rule 10B(1)(e)(iii) of the Rules read with Sec.92CA of the Act, would clearly shows that the net profit margin arising in comparable uncontrolled transactions has to 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.
2. Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the IT(TP)A No.885/Bang/2022 Page 12 of 17 "TPG") contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annex to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. In paragraph 2 of these guidelines it has been explained as to what is comparability adjustment. The guideline explains that when applying the arm's length principle, the conditions of a controlled transaction (i.e. a transaction between a taxpayer and an associated enterprise) are generally compared to the conditions of comparable uncontrolled transactions. In this context, to be comparable means that:
• None of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or • Reasonably accurate adjustments can be made to eliminate the effect of any such differences. These are called "comparability adjustments.
3. In Paragraph 13 to 16 of the aforesaid OECD guidelines, need for working capital adjustment has been explained as follows:
"13. In a competitive environment, money has a time value. If a company provided, say, 60 days trade terms for payment of accounts, the price of the goods should equate to the price for immediate payment plus 60 days of interest on the immediate payment price. By carrying high accounts receivable a company is allowing its customers a relatively long period to pay their accounts. It would need to borrow money to fund the credit terms and/or suffer a reduction in the amount of cash surplus which it would otherwise have available to invest. In a competitive environment, the price should therefore include an element to reflect these payment terms and compensate for the timing effect.
14. The opposite applies to higher levels of accounts payable. By carrying high accounts payable, a company is benefitting from a relatively long period to pay its suppliers. It would need to borrow less money to fund its purchases and/or benefit from an increase in the amount of cash surplus available to invest. In a competitive environment, the cost of goods sold should include an element to reflect these payment terms and compensate for the timing effect.
IT(TP)A No.885/Bang/2022 Page 13 of 17
15. A company with high levels of inventory would similarly need to either borrow to fund the purchase, or reduce the amount of cash surplus which it is able to invest. Note that the interest sate July 2010 Page 6 might be affected by the funding structure (e.g. where the purchase of inventory is partly funded by equity) of by the risk associated with holding specific types of inventory)
16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, with an assumption that the difference should be reflected in profits. The underlying reasoning is that:
• A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) • This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers -- (less) the period granted to pay debts to suppliers."
14. Examples of how to work out adjustment on account of working capital adjustment is also given in the said guidelines. The guideline also expresses the difficulty in making working capital adjustment by concluding that the following factors have to be kept in mind (i) The point in time at which the Receivables, Inventory and Payables should be compared between the tested party and the comparables, whether it should be the figures of receivables, inventory and payable at the year end or beginning of the year or average of these figures. (ii) the selection of the appropriate interest rate (or rates) to use. The rate (or rates) should generally be determined by reference to the rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. The guidelines conclude by observing that the purpose of working capital adjustments is to improve the reliability of the comparables.
15. In the present case the TPO allowed working capital adjustment accepting the calculation given s by the Assessee. The CIT(A) in exercise of his powers of enhancement held that no adjustment should be made to the profit margins on account of working capital differences between the tested party and the comparable companies for the following reasons:
IT(TP)A No.885/Bang/2022 Page 14 of 17
(i) The daily working capital levels of the tested party and the comparables was the only reliable basis of determining adjustment to be made on account of working capital because that would be on the basis of working capital deployed 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.
(vi) 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.
(vii) 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 ITA No.2112/Mds/2011 (2013) 38 taxmann.com. 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. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score IT(TP)A No.885/Bang/2022 Page 15 of 17 deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ITAT in the case of ITO Vs. E Value Serve.com (2016) 75 taxmann.com 195(Del-Trib) has held that insisting on daily balances of working capital requirements to compute working capital adjustment is not proper as it will be impossible to carry out such exercise and that working capital adjustment has to be based on the opening and closing working capital deployed. The Bench has also observed that that in Transfer Pricing Anal is there is always an element of estimation because it is not an exact science. One has to see that reasonable adjustment is being made so as to bring both comparable and test party on same footing. Therefore there is little merit in CIT(A)'s objection on working adjustment based on unavailable daily working capital requirements data. There is Also no merit in the objection of the CIT(A) regarding absence of segmental details available of working capital requirements of comparable companies chosen and absence of details of trade and non-trade debtors of comparable companies as these details are beyond the power of the Assessee to obtain, unless these details are available in public domain. Regarding absence of cost of working capital funds, the OECD guidelines clearly advocates adopting rate(s) of interest applicable to a commercial enterprise operating in the same market as the tested party. Therefore this objection of the CIT(A) is also 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 page 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 1ule 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 IT(TP)A No.885/Bang/2022 Page 16 of 17 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 of net profit margin in the open market. If for reasons given by CIT(A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows:
"(3) An uncontrolled transaction shall be comparable to an international transaction if--
(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or
(ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences."
18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore, the working capital adjustment as claimed by the Assessee should be allowed. We hold and direct accordingly."
25. In view of the above, we remit the issue to the file of AO/TPO to consider the working capital adjustment taking into consideration the details submitted by the assessee after allowing an opportunity of hearing to the assessee. It is ordered accordingly.
IT(TP)A No.885/Bang/2022 Page 17 of 17
26. In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on this 13th day of March, 2023.
Sd/- Sd/-
( BEENA PILLAI ) ( PADMAVATHY S. )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore,
Dated, the 13th March, 2023.
/Desai S Murthy /
Copy to:
1. Appellant 2. Respondent 3. CIT 4. CIT(A)
5. DR, ITAT, Bangalore.
By order
Assistant Registrar
ITAT, Bangalore.