INTERSNACK CASHEW INDIA PVT. LTD.,TUTICORIN vs. DCIT, CIRCLE-1, LTU,, CHENNAI

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ITTPA 39/CHNY/2024Status: DisposedITAT Chennai30 April 2026AY 2020-2113 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Ground No. 1.2, concerning the issue of limitation, was not pressed by the assessee and was accordingly dismissed as not pressed. Regarding Ground No. 2.2 and 2.3 concerning working capital adjustment, the Tribunal found merit in the assessee's submission. It noted that Rule 10B(1)(e)(iii) mandates adjustments for differences that materially affect profitability, including working capital differences, as recognized by OECD Guidelines. The Tribunal observed that the assessee had clearly demonstrated the impact of working capital adjustments on its margins and those of the comparables. Following judicial precedents and the OECD Guidelines, the Tribunal directed the TPO to allow the working capital adjustment for benchmarking purposes and re-compute the ALP accordingly. Since the working capital adjustment was allowed, the remaining grounds were rendered academic and left open. The Tribunal's reasoning was that working capital differences have a direct bearing on the time value of money and associated financing costs, and adjustments are necessary to enhance comparability. The Tribunal found that the assessee had provided sufficient working capital adjustment data. The appeal was partly allowed.

What were the facts?

The assessee, Intersnack Cashew India Pvt. Ltd., filed its return for AY 2020-21 declaring a loss of Rs. 115,33,75,480. The Assessing Officer (AO), pursuant to directions from the Dispute Resolution Panel (DRP), passed a final order of assessment under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961. The AO assessed the total loss at Rs. 105,69,91,762. The primary dispute revolves around a transfer pricing adjustment of Rs. 9,63,83,718 made by the AO/DRP to the arm's length price (ALP) of international transactions involving the sale of goods to an associated enterprise. The assessee is aggrieved by the rejection of its benchmarking analysis, including its claim for working capital adjustment and the treatment of export incentives.

What were the issues?

1. Whether the impugned order of assessment is barred by limitation under Section 153(1)/(4) of the Act? (Question of law) 2. Whether the AO/DRP erred in making an upward adjustment of Rs. 9,63,83,718 to the arm's length price of the international transaction of sale of goods, by rejecting the assessee's benchmarking analysis and claim for working capital adjustment? (Question of mixed law and fact, turning on Section 92CA and Rule 10B) Assessee's Contentions: - The AO/DRP erred in rejecting the benchmarking analysis without cogent reasons. - The AO/DRP erred in rejecting the claim for working capital adjustment, despite the assessee demonstrating material differences and favourable credit terms due to advance payments from the AE. - The AO/TPO/DRP erred in considering Krishival Foods Limited as a comparable due to functional incomparability. - The AO/TPO/DRP erred in treating export incentives and duty drawback as non-operating income. - The assessee relied on Rule 10B(3) regarding adjustments for differences affecting profitability and cited decisions of coordinate benches of the Tribunal, including M/s. Groupon Trade Services Pvt. Ltd. vs. DCIT and its own case for AY 2011-12, and OECD Guidelines. Revenue's Contentions: - The revenue relied on the order of the DRP. - The Ld. DR placed reliance on the decision of Chennai ITAT in Mobis India Ltd. v. Dy. CIT, which was based on the assessee's failure to demonstrate the impact of working capital adjustment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 153(1),Section 153(4),Section 92CA(3),Section 10B(1)(e)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

Hearing: 27.04.2026Pronounced: 30.04.2026

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the final order of assessment passed by the Assessment Unit (in short "A.O") passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short "the Act") dated 29.06.2024 for Assessment Year (AY) 2020-21. The grounds of appeal raised by the assessee are as under: “1. That the impugned order of assessment dated 29.06.2024, framed by the assessing officer pursuant to the directions of the Dispute Resolution Panel (hereinafter referred to as 'DRP") under Section 143(3) read with section 144C of the Income Tax Act, 1961 ('Act') is bad in law.

1.1. That on the facts and in the circumstances of the case, the assessing officer has erred in assessing the total loss of the appellant at Rs. 105,69,91,762 as against the total loss of Rs.115,33,75,480 as per the income tax return filed by the appellant.

1.2 That on the facts and circumstances of the case and in law, the impugned order is barred by limitation in terms of section 153(1)/(4) of the Act and therefore, is liable to be quashed.

Transfer Pricing Adjustment

2.

That the AO/DRP erred on facts and in law in making an upward adjustment of Rs. 9,63,83,718 to the arm's length price of the international transaction of sale of goods undertaken by the appellant with the associated enterprise (AE) on the basis of the order passed under section 92CA(3) of the Act by the TPO.

2.1 That the AO/TPO/DRP erred on facts and in law in rejecting the benchmarking analysis undertaken by the appellant without providing any cogent reason or basis.

2.2 That the AO/TPO/DRP erred in facts and in law in rejecting the claim of the appellant towards adjustment on account of difference in working capital of the appellant vis-à-vis the comparable companies.

2.3 That the AO/TPO/DRP erred on facts and in law in holding that the appellant has failed to demonstrate material differences to warrant working capital adjustment not appreciating that the appellant has received advance from the associated enterprise resulting in negative working capital of the appellant which by itself demonstrates that the appellant enjoys favourable credit terms vis-à-vis the comparable companies.

2.4 That the AO/TPO/DRP erred on facts and in law in considering Krishival Foods Limited as a comparable in the final set of comparable for the purpose of benchmarking analysis not appreciating that the company is y is functionally not comparable to the appellant.

2.5 That the AO/TPO/DRP erred on facts and in law in considering export incentives and duty drawback received by the appellant as non- operating income for purpose of calculation of operating margin, not appreciating that such income is inextricably linked to the international transaction of export of goods undertaken by the appellant.”

2.

The assessee is a private limited company and is a wholly owned subsidiary of Intersnack Cashew Company Pte., Singapore (ICC) which is a subsidiary of Intersnack International B.V, Netherlands. The assessee is engaged in the business of procuring and processing of raw cashew nuts and is catering to domestic and international markets. During the year under consideration, the assessee has entered into the following international transactions:

3.

The assessee filed a return of income for AY 2020-21 on 14.02.2021 declaring loses of Rs. 115,33,75,480/-. Since the assessee had international transactions the A.O made a reference to the Transfer Pricing Officer (TPO), who determined the Arms Length Price (ALP) of the international transactions the assessee had with its Associated Enterprises (AE). In the Transfer Pricing study report (TPSR) the assessee has benchmarked the international transaction of sale of cashew kernels to its AE using Transaction Net Margin Method (TNMM). The assessee has arrived at a margin of 4% where the PLI is computed by applying OP/OC. The assessee has chosen following comparables whose median is arrived at (-)9.62%:

4.

Accordingly, the assessee in the TPSR concluded that the price charged towards sale of cashew kernels is within ALP. The TPO did not accept the TPSR and undertook a fresh search of comparables whereby the TPO chose the following comparables:

5.

Further, the TPO rejected the claim of the assessee towards adjustment on account of difference in working capital position of the assessee vis-à-vis comparable companies. The TPO also proceeded to re-compute the operating margin of the assessee at 0.60% by excluding the export incentives considered by the assessee as operating income. Accordingly, the TPO arrived at an adjustment of Rs. 9,70,13,235/- as per below working:

6.

The A.O passed the draft assessment order including the TP adjustment. Aggrieved, the assessee filed its objections before the Disputes Resolution Panel (DRP). The DRP gave marginal relief to the assessee whereby the TP adjustment was reduced to Rs. 9,63,83,718/-. The assessee is in appeal against the final assessment order passed by the A.O as per directions of the DRP.

7.

Ground No.1 & 1.1 are general not warranting separate adjudication. During the course of hearing, the Ld. AR submitted that ground No.1.2 on the issue of limitation is not pressed. Accordingly, the said ground is dismissed as not pressed. The Ld. AR further submitted that if ground No.2.2 & 2.3 with regard to working capital adjustment is held in favour of the assessee, the rest of the grounds would become academic. Accordingly, we will first proceed to adjudicate Ground No.2.2 and 2.3.

8.

The Ld. AR submitted that as per Rule 10B(3) of the Income Tax Rule while undertaking benchmarking analysis for the purpose ALP it is imperative that appropriate adjustments are made to account for the differences in the controlled and uncontrolled transactions which could affect the price charged/profitability in open market conditions. The Ld. AR further submitted that the allowance of working capital adjustment is necessary to take into account the impact of difference in credit terms allowed by the assessee as compared to the credit terms allowed by the comparable companies. The Ld. AR also submitted that the credit period would have significant impact on the price charged since the same would have to be recovered as cost of working capital. Accordingly, the Ld. AR submitted that allowing the working capital adjustment is necessary or proper benchmarking of the transactions. The Ld.

AR in this regard drew our attention to the following table showing the effect of working capital adjustment of the comparables submitted before the lower authorities (page 333 of the paper book):

9.

The Ld. AR also drew our attention to the significant difference in the working capital position of the assessee vis-à-vis of the companies selected by the TPO to submit that unless the working capital adjustment is carried out the benchmarking done by the TPO is not as per the Rule.

10.

The Ld. AR during the course of hearing submitted the following table containing the working capital adjusted margin of the comparables as selected by the TPO to submit that if the working capital adjustment is given to the comparables chosen by the TPO then the operating margin of the assessee as computed by the TPO at 0.6% would be within ALP:

11.

The Ld. Departmental Representative (DR), on the other hand, relied on the order of the DRP.

12.

We have heard the parties, and perused the material available on record. We notice that the coordinate bench of the Tribunal in the case of M/s. Groupon Trade Services Pvt. Ltd. vs. DCIT (IT(TP)A No.49/Chny/2024 dated 14.08.2025) has considered the issue of allowing working capital adjustment and held that: “48. On perusal of the orders we find that working capital adjustment has been disallowed. The Id.AR argued that without considering the law that appropriate adjustments are to be made to account for the differences in the controlled and uncontrolled transaction which could affect the prices charged / profitability in open market conditions and thereby ignoring the provisions of Rule 10B(3) of the Rules. We find that the assessee had submitted the detailed workings of the working capital adjusted margins before the lower authorities (pages 424-440 Paper Book Volume - II).

49.

As argued by the Id.AR the Transfer Pricing guidance issued by ICAI, 2017, principles of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration issued in July 2022 issued by OECD and UN Practice Manual for Developing Countries Model Convention need to be considered and hence working capital adjustment to be made for computing the margin. 50. We note that the issue of allowability of working capital adjustment has already decided in plethora of cases in favour of the assessee as detailed below: • Visual Graphics Computing Services (India) Pvt. Ltd. [TS-709-HC- 2020(MAD)-TP) - (AY 2012-13) • PCIT vs Kusum Healthcare Pvt. Ltd. [TS-412-HC-2017(DEL)-TP) [Delhi HC]- (AY 2010-11) • Cameron Manufacturing (India) (P.) Ltd. v. DCIT [TS-1254-ITAT- 2018(CHNY)-TP) - (ΑΥ 2013-14) • Bechtel India Pvt. Ltd. v. DCIT [TS-638-ITAT-2015 (DEL)-TP] affirmed by Hon'ble High Court of Delhi [TS-508-HC-2016(DEL)- TP). Special leave petition before the Supreme Court has also been dismissed [TS-591-SC-2017-TP)-(AY 2010-11) • Huawei Technologies India Private Limited (2019) 101 taxmann.com 313 (Bangalore-Trib); • Brocade Communications Systems Private Limited (2020) 117 taxmann.com 439 (Bangalore-Trib); • Yahoo Software Development india P Limited (2020) 115 taxmann.com 60 (Bangalore-Trib) We note that the facts of the assessee's case is identical with the facts of the referred cases supra and respectfully following the same we direct the AO/TPO to grant the working capital adjustment to compute the margin.”

13.

We further notice that an identical view has been taken in the case of Hundai Wia India Pvt. Ltd. vs. DCIT (IT(TP)A No.48/Chny/2024 dated 30.12.2025 where it is held that: “16. Ground 7-Working Capital Adjustment The next issue before us is the ground on working capital adjustment. The Ld AFR submitted that this ground was raised as an additional ground before the Dispute Resolution Panel (DRP). The DRP having admitted the grounds has not allowed the adjustment on working capital. The Ld AR placed reliance on Jurisdictional ruling in the case of Doowon Automotive India Private Limited I.T.A. No. 692/Mds/2016 for AY 2011-12and also I.T.A. No. 3061/Chny /2017 for AY 2013-14, the Tribunal has held under:

"...... We have heard the rival contentions. With regard to the allowability of working capital adjustment, the Tribunal has considered similar issue in the assessment year 2011-12 and vide its order in I.T.A. No. 692/Mds/2016, the Tribunal has observed and held as under: "7. The Ld. AR argued that the Assessing Officer/DRP has confirmed the action of the TPO in not providing working capital adjustment while determining net profit margin of the assessee. In the assessee's own case in the assessment year 2009-10, DRP in its order dated 20.12.2013 has directed the TPO to examine the issue and consider working capital adjustment. Whereas, the Ld. TPO observed that the assessee company is actually buying the parts from the AE and working capital adjustment to be allowed if the assessee demonstrates with AE of allowing the credit period to the assessee and DRP confirm the action of the TPO and the Ld. AR demonstrated the Arithmetic Mean of 4.58% of seven comparables selected at Page 41 of paper book and referred to the working capital adjustment PLR of 12.26% with the comparables current assets being sundry creditors, sundry debtors and inventories at Page 42 and supported working capital adjustment of comparables company based on the financial statements. The Ld. DR relied on the order of TPO and prayed for no adjustment is required. Considering the facts and material on record the financial statements and the paper book, there is necessity for working capital adjustment and accordingly we remit the issue to the file of AO to consider the material for fresh consideration. 5.3 By giving effect to the order of the ITAT, vide order dated 28.10.2018, the TPO had examined and allowed the benefit of working capital adjustment. Thus, respectfully following the above decision of the Coordinate Benches of the Tribunal, for the assessment year under consideration also, we direct the Assessing Officer to give suitable adjustment against the working capital component while determining the ALP.

17.

Per contra, the Ld DR 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] where the decision was based on the factual aspect that the Assessee was not able to demonstrate the impact of working capital adjustment. The Ld AR objected to the argument of the Ld. DR and pointed out that complete working capital adjustment working has been given by the Assessee and a copy of the same is at pages 212 to 260 of the Assessee's paper book.

18.

We perused the material on record and find that the working is available and furnished before the lower authority. Therefore, we direct the TPO to consider the working capital adjustment as provided in paper book page nos. 212 to 260 and grant adjustment while arriving at the arm's length price. This ground is allowed.” 14. We find that Rule 10B(1)(e)(iii) clearly mandates that the net profit margins of comparable uncontrolled transactions must be adjusted to eliminate differences which materially affect profitability, and working capital differences—having a direct bearing on the time value of money—are one such material factor, as also recognised in the OECD Guidelines. The OECD Guidelines recognise that differences in working capital levels— comprising receivables, payables and inventory—materially influence profit margins due to the time value of money and associated financing costs, and accordingly permit adjustment to the margins of comparables so as to enhance comparability. The guidelines recognises that higher receivables or inventory tend to depress margins, whereas higher payables confer a financing advantage, which has a direct bearing on margins and therefore reasonably accurate adjustments should be undertaken to neutralise such differences and place the tested party and comparables on a like footing. The overarching objective of such adjustment is to improve the reliability of comparables, and therefore it is to be allowed where it materially impacts margins and is based on reasonable and supportable data, but not on a purely notional or arbitrary basis. The judicial precedence in this regard have been consistently taking the view that the working capital adjustment based on reliable data needs to allowed for a proper bench marking exercise.

15.

In the given case, the assessee has clearly demonstrated the impact of the working capital adjustments on the margins of the assessee and the comparables (refer table above) and therefore when we apply the ratio laid down by the judicial precedence and the OECD guidelines, we are of the view that for the purpose of ALP the working capital adjusted margins need to be considered. The working capital adjusted margins of the TPO comparables are extracted in the earlier part of this order and on perusal of the same we see merit in the submission that if the working capital adjustment is allowed in the margins of the comparables chosen by the TPO, then the assessee's margn as computed by the TPO is within arm's length. Accordingly we direct the TPO to allow the working capital adjustment for the purpose of bench marking and re-compute the ALP accordingly.

16.

Since we have allowed the working capital adjustment in favour of the assessee, the rest of the ground have become academic and left open accordingly.

17.

In the result, the appeal of the assessee is partly allowed.

Order pronounced on 30th day of April, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 30th April, 2026. EDN, Sr. P.S

आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF EJTADA Digitally signed by EJTADA DURGA DURGA NARESH Date: 2026.05.06 NARESH 10:38:05 +05'30'

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