ATMAL R & D INDIA PRIVATE LIMITED,CHENNAI vs. ACIT, CORPORATE CIRCLE 1(1), CHENNAI

आदेश /O R D E R

PER MAHAVIR SINGH, VICE PRESIDENT:

2 Chennai for the assessment year 2013-14 u/s.143(3) r.w.s. 144C(13) r.w.s.92CA of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 17.11.2017.

4 up basis for the same. Copy of the intercompany agreement is also enclosed in its paper-book. The TPO while dismissing the claim of adjustment of working capital submitted that comparables margin should be adjusted for working capital intensities but it should be relevant only in the event of assessee’s working capital being negative. According to TPO, in the instant case, there can be no grievance for the assessee since its margins are not affected by negative working capital and hence, the assessee’s claim was rejected by following the decision of Co-ordinate Bench of this Tribunal in ITAT ‘C’ Bench in in the case of Mobis India Limited vs. DCIT, wherein the assessee had negative working capital and despite the same, the Tribunal held that “the assessee has not been able to justify the adjustments that were required to be made on account of negative working capital.” Apart from this, the TPO has not discussed anything. The assessee moved to DRP.

4.1 The DRP also rejected the claim of assessee by repeating whatever finding given by the TPO verbatim and as under:- “13.1 Panel: We have perused submissions shared by the assessee. This contention would be relevant only in the event of assessee’s working capital being negative. Therefore in the instant case there can be no grievance for the assessee since its margins are not affected by negative working capital. Reliance is placed on the decision of the Honourable ITAT ‘C’ bench

5 Chennai in (AY 2007-08) in the case of Mobis India Limited vs. DCIT. In this case the appellant had negative working capital. Despite this fact, the Honourable ITAT held that “the assessee has not been able to justify the adjustments that were required to be made on account of negative working capital.” Therefore the assessee’s claim is rejected. Hence the above ground rejected.”

Aggrieved, now assessee is in appeal before the Tribunal.

6 According to assessee, since the assessee’s working capital was negative, the TPO erred in not granting working capital adjustment as the TPO has factually erred in mentioning that in the instant case there is no grievance which is factually incorrect. The assessee gave working after analyzing the financials of comparables margin i.e., unadjusted and adjusted after working capital adjustment, which provides as under:-

Working Working Working Working TP order Capital Rectified Capital Sl. Capital Capital Company Name margins Adjusted margins Adjusted No. Adjustment Adjustment (1) (4) NCP NCP (2) (5) (3)=(1)-(2) (6) = (4)-(5) Thirdware Solutions 1 30.97% 3.69% 27.28% 30.92% 3.69% 27.24% Ltd CG-VAK Software & 2 21.36% 2.65% 18.71% 15.21% 2.51% 12.70% Export Ltd Goldstone technologies 3 15.32% 12.50% 2.82% 15.16% 12.48% 2.68% Ltd ICRA Techno Analytics 4 17.09% 7.13% 9.96% 16.73% 7.11% 9.62% Ltd Acropetal technologies 5 18.55% 15.38% 3.17% 18.55% 15.38% 3.17% ltd 6 Tata Elxsi Ltd 10.76% 2.43% 8.33% 10.76% 2.43% 8.33% 7 Cades Digitech Ltd 3.33% 4.03% -0.70% 3.33% 4.03% -0.70% 31.12% Vama Industries Ltd 8 37.06% 5.97% 31.09% 37.06% 5.94% 11.77% Arithmetic Mean 19.30% 6.72% 12.58% 18.47% 6.70% In view of the above, the ld.counsel stated that the assessee should be given appropriate adjustment to be made to the comparable companies, to enhance the quality of the comparative analysis and for this, he relied on the decision of the Co-ordinate Bench of this Tribunal, Pune Bench in the case of Software AG (India) Pvt. Ltd., in 7 wherein the Tribunal following other orders held as under:- “9. We find that similar issue of allowing working capital adjustment to the assessee has been held in favour of the assessee by series of decision on various Benches of the Tribunal including Pune Bench of Tribunal in DCIT Vs. Emptoris Technologies India Pvt. Ltd. in ITA No.1500/PN/2012 and Emptoris Technologies India Pvt. Ltd. Vs. DCIT in ITA No.1550/PN/2012, relating to assessment year 2007-08, order dated 08.07.2015. The CIT(A) on the other hand had placed reliance on the decision of Delhi Bench of Tribunal in Vedaris Technologies Pvt. Ltd. v ACIT (supra) and the OECD Guidelines. In view of the above, we find merit in the order of CIT(A) in directing the Assessing Officer to grant working capital adjustment to the assessee on the basis of average credit/debit period for the year and commercial rate of interest. In view thereof, we find no merit in the grounds of appeal raised by the Revenue and the same are dismissed.”

6. Contradicting the above arguments of the ld.counsel, the ld.CIT-DR argued that in case the assessee has positive working capital, assessee is not entitled for adjustment on account of negative working capital of the comparables because the assessee has not justified the adjustment that were required to be made on account of negative working capital. He further submitted that the contention of the assessee would be relevant only in the event of assessee's working capital being negative. Therefore in the instant case there can be no grievance for the assessee since its margin are not affected by negative working capital. The ld.CIT-DR relied on the decision of the Hon'ble ITAT ‘C' bench Chennai in Mds/2011 (A.Y. 2007-O8) in the case of Mobis India Limited Vs

8 DCIT. In this case the assessee had negative working capital. Despite this fact, the Hon'ble ITAT held that the assessee has not been able to justify the adjustments that were required to be made on account negative working capital. He further stated that this ground of appeal of the assessee has been dealt with in detail by DRP in para 13.1 while rejecting assessee's appeal.

9 adjustments are necessary to establish it, an understanding of how independent enterprises evaluate potential transactions is required."

We have gone through the facts in the present case and noted that the Atmel India CDS segment operates with relatively favourable working capital position than that of comparable companies and as a result of this Atmel India working capital percentage on operating cost turns out to be negative i.e, -9.71%. We noted that this fact does not hamper from claiming of working capital adjustment as the Tribunal is consistently allowing this claim as held by Co-ordinate Bench of ITAT, Pune in the case of Software AG (India) Pvt. Ltd., supra. Hence, we direct the TPO to allow the claim of assessee accordingly. This issue of assessee’s appeal is allowed.

10 and testing of products relating to integrated circuit and semiconductor devices and related software development services. The assessee while carrying out TP research and prepared TP report included Akshay Software Technologies Ltd., has functionally comparable and accordingly, it was included by assessee as comparable in its TP report. The TPO rejected Akshay Software Technologies Ltd., for the reason that it is predominantly engaged onsite development. He stated the reasons that the company Akshay Software Technologies Ltd., is predominantly engaged in onsite development whereas the assessee company is engaged in offshore development. The TPO noted that the assessee has cited onsite expenditure indicating onsite functions as a reason to object to a company identified by TPO namely, Persistent Systems. According to TPO, this argument of the assessee is inconsistent and can only be seen as an attempt to reduce its tax liability. Hence, this comparable was rejected by TPO. Aggrieved, assessee raised objection before the DRP. The DRP also rejected the objection by observing in para 17.1 as under:- “17.1 Panel: The reasons cited in the TP order is that company is predominantly engaged in onsite development. Whereas the assessee is engaged in offshore development. Further the assessee has cited onsite expenditure indicating onsite functions as a reason to object to a comparable identified by the TPO, namely, Persistent Systems. Hence this argument of the assessee is inconsistent and can only be seen as an attempt to reduce its tax liability. Hence this comparable is rejected.

11 Hence the above ground is rejected.”

Aggrieved, now assessee is in appeal before the Tribunal.

12 himself has accepted the company as comparable. We accordingly direct the Ld. T.P.O to accept Akshay Software as comparable to determine the Arms Length Price of the assessee.

13 or not. Hence, this issue needs to be referred back to the file of the TPO who will find out whether Akshay Software Technologies Ltd., is comparable to the assessee or not. The TPO will also consider the decision of ITAT, Delhi in the case of Qualcomm India Pvt. Ltd., supra. In term of the above, this issue is remitted back to the file of the TPO / AO and hence, this ground of assessee is allowed for statistical purposes.

14 accounting year does not impact the comparability parameters. But the TPO rejected that the issue of non-acceptability of different financial year ending companies has been discussed and hence, this comparable is rejected. Aggrieved, assessee preferred objections before the DRP. The DRP rejected the ground vide para 6.1 as under:- “6.1 Panel : The arguments of the assessee cannot be accepted as sufficient number of comparable companies with same accounting period is available in public domain, there is no need to consider the comparables ending with different accounting year which leads to the deviation in the number reported. Hence the above ground has been dismissed.” Aggrieved, assessee came in appeal before us.

(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.

It was argued that there would not be any difference between a company maintaining its books of accounts for December ending and a company maintaining its books of accounts for March ending. Further and alternatively it was argued that even though one is liable to establish that there was a difference by virtue of different fiscals, such difference would have to be adjusted by virtue of the above sub-rule. Hence, he argued that this matter can be referred back to the TPO to make suitable adjustment in term of Rule 10B(3) of the Rules.

16 domain. He stated that the DRP has dealt this ground of appeal of the assessee in para 6.1 while rejecting assessee's appeal.

Order pronounced in the open court on 12th July, 2023 at Chennai.