C.H. ROBINSON WORLDWIDE FREIGHT INDIA PVT. LTD.,,CHENNAI vs. ACIT, CC - 1 (2),, CHENNAI

आदेश / O R D E R PER AMITABH SHUKLA, A.M :

This appeal is filed against the order u/s 143(3) r.w. 144C(13) of Ld. AO, passed w.r.t. recommendations of DCIT-TPO u/s 92CA(3) dated 31.10.2018, vide ITBA/AST/F/144C/2018-19/1014631944(1) dated 28.12.2018. 2.0 The appellant has raised altogether 5 grounds of appeal contesting the order u/s 143(3) r.w. 144C(13) dated 28.12.2018 of Ld. AO

IT(TP)A No.18/Chny/2020 :- 2 -:

passed w.r.t. recommendations of DCIT-TPO u/s 92CA(3) dated 31.10.2018. 3.0 Ground of appeal No.1 to 3 is general in nature and does not require any specific adjudication and hence dismissed. 4.0 Ground of appeal No. 4, in view of the decision in ground No.5 hereunder, is academic in nature and does not require any specific adjudication and hence dismissed. 5.0 The first issue arising from ground of appeal number 5 is regarding the non-grant of working capital adjustments by the Ld. TPO. The Ld. Counsel for the assessee submitted that the issue is squarely covered by the decision of Hon’ble Coordinate Bench of this Tribunal in assessee’s own case vide ITA No.3444/Chny/2016 for AY-2011-12. It was accordingly requested that the ratio laid down therein may kindly be applied in the present case also as no change of facts is discernable on records. The Ld. DR would like us to believe on the correctness of the order of lower authorities. 6.0 We have heard the rival submissions in the light of material available on records. In this regard we have noted the decision of Hon’ble Coordinate Bench of this Tribunal in assessee’s own case for AY-2011- 12 supra. For the purposes of clarity the same is reproduced hereunder:-

IT(TP)A No.18/Chny/2020 :- 3 -:

“…..6.2 The learned DR submitted that the learned CIT(A) erred in upholding working capital adjustment sought by the assessee without appreciating fact that working capital adjustment would be relevant only in the event of assessee’s working capital being negative. The learned DR referring to decision of the ITAT., Chennai Bench in the case of M/s. Mobis India Limited vs. DCIT in ITA No.2112/Mds/2011 submitted that when the assessee has not been able to justify adjustments which were required to be made on account working capital, then no adjustment can be made for working capital. Therefore, the learned DR submitted that the learned CIT(A) without appreciating facts has simply directed the TPO to allow working capital adjustment. 6.3 The learned A.R for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that this issue is covered in favour of the assessee by the decision of the ITAT., Chennai in the case of M/s.Foxteq Services India Pvt. Ltd. in ITA No.174/Mds/2016, where it was held that without comparing working capital employed by comparable companies and that of the assessee, no adjustment can be made in respect of international transactions of the assessee. The learned CIT(A), after considering relevant facts has rightly held that the TPO is required to provide working capital adjustments in comparability with the comparable companies selected by the Assessing Officer for the purpose of determining arm’s length price of international transactions of the assessee. 7. We have heard both the parties, perused material available on record and gone through orders of the authorities below. We find that the learned CIT(A) has recorded categorical finding that in light of Rule 10B(3) of the Income Tax Rules, 1962, that the assessee has demonstrated by presenting working capital position and also details of working capital days and proved that there is difference between working capital cycle of assessee with that of comparables. Therefore, suitable adjustment should be made to provide working capital for comparing operating margin of the assessee with that of comparables selected for testing international transactions of the assessee. The learned CIT(A), while doing so, has relied upon the decision of the ITAT., Chennai in the case of M/s.Foxteq Services India Pvt. Ltd. in ITA No.174/Mds/2016, where it was clearly held that working capital employed by the assessee and that of comparable companies needs to be taken into consideration and further, without making suitable adjustments there cannot be any transfer pricing adjustments to international transactions of the assessee. The relevant findings of the learned CIT(A) are as under:- 10. I have carefully’ considered the facts in issue, order of the AO /TPO, submissions made by the Appellant and materiel on record, Alter taking into consideration detailed submissions made by the appellant, the following issues arise for consideration: (i) Rule 10B(3) of the Income—tax Rules provides that, in cases where any difference exists in a comparability analysis, the same needs to be eliminated by performing reasonably accurate adjustments to mitigate the effects of such differences. (ii) On perusal of detailed submission relating to working capital adjustment, it is pertinent to note that working capital of the company have direct bearing in the profitability of the appellant and comparable companies. (iii) The appellant demonstrated this by presenting the working capital position and also furnished the details of the working capital days. It can be observed that a wide gap exists between the working capital cycle of the appellant and the comparable companies chosen i.e. 16.29 days of the appellant vis-ã-vis 58.44 days of working capital cycle of the comparables. This difference would materially affect the operating margins of the appellant and comparable

IT(TP)A No.18/Chny/2020 :- 4 -:

companies, thus warranting an economic adjustment. (iv) The methodology of computation of the working capital adjustment was also presented by the appellant, which is prepared in line with .the transfer pricing guidelines prescribed by the Organization for Economic Cooperation and Development in Annexure to Chapter Ill and can be considered to be appropriate. 11. Accordingly, it would be appropriate that, while comparing the operating margins earned by the comparable companies’ Vis-à-vis the appellant, differences on account of working capital employed should be factored So far as the merits of the issue raised in the aforesaid ground is concerned, the view finds support in the Jurisdictional Tribunal decision in the case of Foxteq Services India Private Limited (TA No. 174/Mds/2016) for AY. 201 112 order dated 1.9.2016 wherein it was held as under: 7 The assessee objected to the adjustment made by the Transfer Pricing Officer. With regard to working capital adjustment, the asseessee claims that the difference in working capital between the assessee and the comparable companies - would materially affect the profit determined. Therefore, ‘certain adjustment needs to be made to bring them on equal footing. The assessee also brought to the notice of the DRP that the working capital adjustment, which was to ensure the profit derived by the comparable companies, can be compared with the profit of the assessee. This Tribunal is of the considered opinion that the capital employed on the assessee, including working capital, is one of the relevant factors for the purpose of determining the arm’s length price. Therefore, the capital employed by the assessee, including the working capital, and that of comparable companies needs to be taken into consideration. Without comparing working capital employed by the comparable companies and that of the assessee, this Tribunal is of the considered opinion that there cannot be any transfer pricing adjustment.. 12. Hence, I am of the considered view that for the purposes of transfer pricing analysis any difference arising on account of working capital positions is required to be factored, so as to make the comparability analysis more equitable. Accordingly, the working capital adjustment sought for needs be granted to the appellant.” 8. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that there is no error in the reasons given by the learned CIT(A) to direct the TPO to provide working capital adjustments and thus, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue…..”

7.0 In the above view of the matter and in respectful compliance to decision quoted above, we hereby direct the Ld. TPO to recompute his transfer pricing adjustments de novo, in line and sync with the observations of the Hon’ble Coordinate Bench supra. To this extent the order of lower authorities’ stands set aside on this issue of working capital adjustments made by the Ld. TPO. It shall be duty of Ld. TPO to provide

IT(TP)A No.18/Chny/2020 :- 5 -:

due opportunity of being heard to the assessee. The assessee on its part shall comply with the statutory notices issued by the lower authorities and provide all details necessary for further adjudication of the matter. Accordingly, the ground of appeal number 5 raised by the assessee is allowed for statistical purposes. 8.0 Ground of appeal number 6 has not been pressed by the assessee and hence dismissed. 9.0 Ground of appeal number 7 is regarding the disallowance made u/s 14A. It is the case of the assessee that the Ld. AO and DRP erred in making disallowance u/s 14A of the act on adhoc basis. The Ld. DR placed reliance upon on assessment order. 10. We have heard the rival submissions in the light of material available on records. We have noted the following observations of the Ld AO on the impugned matter recorded in the assessment order “….Considering the exempted income claimed at Rs.38.66 lacs, application u/s 14A is considered. Though there is no financial cost, since exemption has been claimed circular number 5 / 2014 is attracted for the addition….” . It has been noted that the approach of the Ld. AO has been thoroughly casual and bereft of any application of mind. We concur with the view of the Ld. Counsel for the assesee that the disallowance has been made without any proper calculation and in an

IT(TP)A No.18/Chny/2020 :- 6 -: adhoc manner. Accordingly we set aside the order of lower authorities and direct the Ld. AO to readjudicate the matter of disallowance u/s 14A, if any, de novo after giving due opportunity of being heard to the assessee. The assessee on its part shall comply with the statutory notices issued by the lower authorities and provide all details necessary for further adjudication of the matter. Accordingly, the ground of appeal number 7 raised by the assessee is allowed for statistical purposes. 11. In the result, appeal of the assessee is partly allowed. Order pronounced on 4th , December-2024 at Chennai. Sd/- Sd/- ( एबी टी. वकी) (अमिताभ शुक्ला) (ABY T VARKEY) (AMITABH SHUKLA) न्याययक सदस्य / Judicial Member लेखा सदस्य /Accountant Member चेन्नई/Chennai, ददनांक/Dated: , December-2024. KB/- आदेश की प्रयतललपप अग्रेपषत/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT – Chennai 4. पवभागीय प्रयतयनधि/DR 5. गार्ड फाईल/GF