M/S YAHOO SOFTWARE DEVELOPMENT INDIA PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1)(2), BANGALORE

The assessee is a company engaged in the business of software design, development, testing, support and implementation of computer software. The assessee is a wholly owned subsidiary of Yahoo (non- resident). During the previous year, the assessee provided SWD services to Yahoo for which it received a payment of Rs.867,17,41,441. Since the aforesaid transaction was an international transaction, the income arising from such international transaction has to be determined in accordance with the provisions of section 92 of the Act. To justify the price received in the international transaction as one at arm’s length, the assessee filed a Transfer Pricing (TP) analysis adopting the Transactional Net Margin Method (TNMM) as the most appropriate method for determining the arm’s length price (ALP). The Profit Level Indicator (PLI) chosen for the purpose of comparing the assessee’s profit margin with the comparable companies profit margin was Operating Profit to Operating Cost (OP/OC). The OP/OC of the assessee was arrived at in the TP analysis as follows:- Particulars Amount (Rs) 8671741441 Income from provision of services Add: Exchange gain (Net) 86765355 Operating revenue 8758506796 TOTAL EXPENSES (as per P&L) 7322770620 Less: Provision for doubtful advances 6751270 Less: Provision for loss on fixed assets held for sale 5244587 Less: Donations 7271536 7303503227 Operating Expenses 1455003569 Operating Profit 19.92% OP/OC

The assessee chose 7 comparable companies and the arithmetic average profit margin of those 7 companies was arrived at 11.41%. Since the profit margin of assessee was much higher than the profit margin of the comparable companies, the assessee claimed that the price received in the international transaction has to be regarded as at arm’s length.

The Transfer Pricing Officer (TPO) to whom the question of determination of ALP was referred by the AO as required u/s.92CA of the Act, however, rejected all the 7 comparables chosen by the assessee and he chose a set of 8 comparable companies. The average arithmetic profit margin of 8 companies chosen by the TPO was as follows:- Amounts in Rs. Lakh S OP/OC NO OR/ (in %) NAME OF TAX PAYER OC OP SALES 1 Infosys Ltd. 46,91,700 32,77,700 11,84,200 36.13% 2 Larsen & Toubro Infotech Ltd. 4,54,360 3,64,619 89,741 24.61%

The assessee had computed working capital adjustment and had given a detailed working in this regard. Before the AO the said details in this regard are at pages 186 to 223 of assessee’s PB. The TPO, however, did not allow working capital adjustment as worked out by the assessee in its reply. The TPO did not allow working capital adjustment for the reason that the assessee failed to demonstrate the impact of difference in working

The TPO ultimately computed the ALP and consequent addition to the total income of assessee as follows:- 15.4. Computation of Arm's Length Price: 15.4.1 The arithmetic mean of the Profit Level indicators is taken as the arm's length margin. Please see Annexure 'A' for details of computation of PLI of the comparable. Based on this, the arm's length price of the services rendered by the taxpayer to its AE(s) is computed as under: SWD

We have heard the rival submissions. At the time of hearing, it is noticed that if 3 out of 11 comparable companies that remain after the order of DRP are adjudicated and excluded then that would mean that the profit margin of the Assessee with the remaining comparable companies would be at Arm’s length and hence there would be no necessity to adjudicate on the choice of comparable companies. The 3 companies whose exclusion from the list of comparable companies was argued before us are (1) Thirdware Solutions Ltd., (2) Infosys Ltd. & (3) Persistent Systems Ltd.

As far as exclusion of aforesaid 3 companies from the list of comparable companies is concerned, the ld. counsel for the assessee brought to our notice the decision of ITAT Hyderabad Bench in the case of Kony IT Services P. Ltd. V. DCIT, for AY 2014-15, order dated 20.11.2019. In the aforesaid decision was rendered in the IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 6 of 31 case of assessee engaged in software development services, exclusion of the aforesaid 3 companies came up for consideration and the Tribunal held as follows:- “(ii) Thirdware Solutions Limited: (a) As argued by the Ld. AR it is evident from the Annual Report (page No.235 of PB-II) that the company has derived revenue from sale of products amounting to Rs. 206.75 Crs. Further, there is no revenue from sale of services during the previous year. The assessee has also purchased stock amounting to Rs. 40.21 Crs. While as the assessee company is not engaged into any activity of producing physical goods. page No.235 of PB-II

The ld. DR submitted that the functional profile of the assessee in the present case and that of the case decided by the ITAT Hyderabad Bench in the case of Kony IT Services P. Ltd. (supra) are different. In this regard, it was submitted that the in the decision rendered in the aforesaid case, there is a reference to assessee in that case being engaged in software development services, whereas in the TPO’s order in the case of assessee in this appeal, services provided are different.

We have considered the rival submissions and are of the view that description of services as mentioned in the TPO’s order in the case of assessee in this appeal is akin to software development services and it cannot be said that the functional profile of assessee in this case and that of assessee in the case of Kony IT Services P. Ltd. (supra) are different. Moreover, the choice of comparables in both the cases by the TPO is identical, which by itself would show that the functional profile of the Assessee and that of the Assessee in the case of Kony IT Services Pvt. Ltd. (supra) are identical. We find that the ITAT Hyderabad has clearly brought out in its order that the functional profile of the assessee in this appeal and comparable companies viz., Thirdware Solutions Ltd., Infosys Ltd. & Persistent Systems Ltd. are different inasmuch as the common difference is being that these companies are not pure software development services, but are also engaged in product development and the segmental profits of the software development services segment is not available. Besides the above, company like Infosys Ltd. owns Intellectual Property Rights (IPRs), besides having big brand value and the company like Persistent Systems Ltd. also own significant intangibles, besides owning IPRs and deriving income from such IPRs. We are therefore of the IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 10 of 31 view that the aforesaid 3 comparable companies should be excluded from the list of comparable companies. We hold and direct accordingly.

The only other issue which was argued before us was action of the revenue authorities in not providing working capital adjustment to the profit margin of the comparable companies and that of the assessee. In this regard, as we have already seen, the primary reason assigned by the TPO which was endorsed by the DRP is that the assessee has not demonstrated the impact of working capital adjustment on the profit margin of the assessee as well as comparable company.

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;

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.

Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the “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

In Paragraphs 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. 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 rate July 2010 Page 6 might be affected by the funding structure IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 14 of 31 (e.g. where the purchase of inventory is partly funded by equity) or 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.”

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.

In the present case the TPO held that no adjustment should be made to the profit margins on account of working capital differences IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 15 of 31 between the tested party and the comparable companies for the following reasons:- (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. (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.

The TPO also placed reliance on a decision of Chennai ITAT in the case of Mobis India (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 IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 16 of 31 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 defense to say that the Assessee has not furnished the required details and on that score 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 Analysis 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 tested party on same footing. Therefore there is little merit in TPO/DRP’s objection on working adjustment based on unavailable daily working capital requirements data. There is also no merit in the objection of the TPO/DRP 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 IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 17 of 31 tested party. Therefore this objection of the TPO/DRP is also not sustainable.

In the light of the above discussion, we are of the view that the revenue authorities were not justified in denying adjustment on account of working capital adjustment. 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 186 to 200 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 TPO/DRP 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 the revenue authorities 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 IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 18 of 31 (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.”

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 should be allowed. We hold and direct accordingly.

As we have already observed, the assessee in the present case has given all the details required for working capital adjustment and the revenue authorities were not justified in denying the claim of assessee for deduction. The TPO/AO is directed to allow working capital adjustment in the light of the material already available on record, after affording opportunity of being heard to the assessee.

The TPO/AO is directed to compute the ALP in the light of directions as given above, after affording opportunity of being heard to the assessee.

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

This appeal by the assessee is against the final order of assessment dated 27.9.2019 of the Jt. CIT, Special Range 7, Bangalore passed u/s. 143(3) r.w.s. 144C of the Act relating to assessment year 2015-16.

As far as the international transaction and other details are concerned, the facts are similar to AY 2014-15. In AY 2015-16, the assessee filed a TP analysis choosing 12 comparable companies whose

Since the profit margin of the assessee was more than the average profit margin of comparable companies, the assessee claimed that the price received in the international transaction was at arm’s length. The TPO accepted 3 out of 12 comparable companies chosen by assessee in its TP study viz., CG Vak Software & Exports Ltd., E-Zest Solutions Ltd. and Tata Elxsi Ltd. as comparable companies. The TPO on his own selected 13 other comparable companies and arrived at a set of 16 comparable companies. The average arithmetic mean profit of the comparable companies was as follows:-

The TPO did not allow the working capital adjustment and finally determined the ALP and consequent addition made to the total income as follows:-

The addition suggested by the TPO was incorporated by the AO in the draft order of assessment and against such draft order, the assessee preferred objections before the DRP. The DRP excluded Thirdware Solutions from the list of comparable companies and included Sasken Communication Technologies Ltd. and Cigniti Technologies Ltd. The DRP did not grant any working capital adjustment. Consequent to the relief allowed by the DRP as above, the TP adjustment and addition to be made to total income stood reduced from Rs.32,74,23,000 to 19,86,00,800.

The assessee, aggrieved, by the determination of ALP as above has filed the present appeal before the Tribunal.

At the time of hearing, the ld. counsel for the assessee has prayed for exclusion of 4 comparable companies that remain after the order of the DRP viz., Persistent Systems Ltd., Infosys Ltd., Mindtree Ltd. and L&T Infotech Ltd. He brought to our notice that as far as Persistent Systems Ltd. is concerned, the reasoning given for excluding this company for AY 2014-15 will equally hold good for the present year as well. In this regard, our attention was drawn to page 601 of the assessee’s PB wherein in the annual report of this company, Notes forming part of financial statement in Note (i) which gives the description of income from software services, there is a reference to revenue from licensing & software, which sufficiently indicates that the assessee is not a pure SWD services provider. It was IT(TP)A Nos.2657/Bang/18 & 2365/Bang/19 Page 22 of 31 also brought to our notice that the profit & loss account which is at page 596 read with Notes forming part of the financial statement at page 604 wherein the segmental reporting is not based on different segments and the statement presents a consolidated financial statement without any segmental reporting. This company has also significant RPT transaction of 25% on sales. He pointed out that the TPO & DRP on the application of RPT filter has not expressed any opinion. The ld. DR relied on the order of DRP wherein the DRP has made extensive reference to each of the objections regarding absence of segmental revenue in the accounts and has also noticed that the software products segment had an insignificant revenue and that the ownership of intangibles by the assessee has had no effect whatsoever.

We have considered the rival submissions. We find that on the question of application of RPT filter, the assessee had made the following submission before the DRP:- 4. Fails the Related Party Transaction to Sales filter applied by the learned TPO In the show-cause notice issued, the learned TPO has excluded companies for which the ratio of RPT to sales exceeds 25% during the current year i.e., during FY 2014-15. The relevant extract from the show-cause notice is reproduced below for ease of reference: e) Companies who have more than 25% related parry transactions of the sales were excluded. Companies having related party transactions of more than 25% are proposed to be excluded. A threshold of 25% is being applied following the provisions of Section 92A(2)(a) which provides a limit of 26% of the equity capital carrying voting rights for treating an enterprise as Associated Enterprise. if the limit is reduced further it would only result in eliminating more and more companies, on the other hand if the limit is relaxed then

This argument has been addressed by the DRP in its order as follows:-

Further, the assessee had also raised plea with regard to onsite revenue filter by pointing out that onsite revenue is substantial and therefore this company should not be regarded as a comparable company with a company which does not have any onsite revenue. In this regard, the ld. counsel for the assessee placed reliance on the decision of the ITAT Bangalore Bench in the case of Trilogy e-business Software India P. Ltd. v. DCIT, for AY 2007-08 dated 23.11.2012 wherein this Tribunal took the following view:- “64. The next objection of the Assessee is that when the most appropriate method selected for determining ALP is the TNMM there is no reason as to why one should look at price difference in offshore software development and onsite software development. It is no doubt true that in TNMM it is only the margins in an uncontrolled transaction that is tested with reference to the controlled transaction but it is not possible to ignore the fact that pricing will have an effect on the margins obtained in a transaction. The argument that if pricing structure were to be considered as criteria, then it will have to be seen as to what is the pricing structure of all the comparable for various projects cannot be accepted because the TPO has not chosen any other onsite software service provider with a revenue composition of more than 75% from onsite software services as comparable. As rightly observed by the TPO, the pricing is different in onsite when compared to offshore operations. The further observations of the TPO that the reasons for the same lie in the fact that while in the case of OFFSHORE projects most of the costs are incurred in India; an ONSITE project has to be carried out abroad significantly increasing the employee cost and other costs.

The next argument of the Assessee is that TPO has held that margins are lower in onsite software services and that margin is not a criteria to select or reject a comparable under Rule I0B(2) of the I.T. Rules. We are of the view that this argument again ignores the fact that the approach of the TPO has been to highlight the fact that there can be no functional comparability, if the assets employed and risks assumed are taken into consideration. It is in that context the TPO has referred to the margins.

The companies who generate more than 75% of the export revenues from onsite operations outside India are effectively companies working outside India having their own geographical markets, cost of labour etc., and also return commensurate with the economic conditions in those countries. Thus assets and risk profile, pricing as well as prevailing market conditions are different in predominantly onsite companies from predominantly offshore companies like the taxpayer. Since, the entire operations of the tax payer are taking place offshore i.e. in India; it is but natural that it should be compared with companies with major operations offshore, due to the reason that the economics and profitability of onsite operations are different from that of offshore business model. As already stated the Assessee has limited its analysis only to functions but not to the assets, risks as well as prevailing market conditions in which both the buyer and seller of services located. Hence, the companies in which more than 75% of their export revenues come from onsite operations are to be excluded from the comparability study as they are not functioning in similar economic circumstances to that of the tax payer. Hence, it is held that this filter is appropriately applied by the TPO.

On the issue of RPT filter, we notice that the TPO in para 16 has accepted that the RPT filter should be @ 25%. In the case of Persistent Systems Ltd., the RPT is at 31.32% as extracted in the earlier part of this order and therefore this company should be excluded by application of RPT filter. In view of the above, we do not wish to go into other grounds on which this company is sought to be excluded viz., that it is a product company and there is no segmental data between product and services segment, presence of onsite activity and the impact of extra-ordinary event of acquisition during the relevant previous year. Therefore, this company is directed to be excluded from the list of comparable company.

As far as L&T Infotech Ltd. is concerned, the ld. counsel for the assessee brought to our notice the decision of ITAT Delhi Bench in the case of Saxo India Pvt. Ltd. v. ACIT, for AY 2011- 12, order dated 5.2.2016, wherein the Tribunal took note of the fact that this company was also trading in software and owned insignificant intangible assets. The company was excluded from the list of comparable companies with reference to SWD services provider such as the assessee. The ld.

The next company which the assessee seeks to exclude is Infosys Ltd. As far as this company is concerned, it is seen that the following are the functional dissimilarities brought to our notice:- “Functionally dissimilar - owns intellectual properties, incurs significant R&D costs & onsite activity. - Engaged in diversified business activities. - Involved in development of software products in addition to software services. - Owns intellectual property rights. - Incurs significant research and development costs. - Carries out significant activities based on onsite business.

The DRP, however, has not thought it fit to exclude this company by observing that this company has substantial pre-dominant revenue from software services and the growth was not attributable to any brand value. Presence of onsite activity and the expenses on R&D have all been brushed aside. In our view, the difference pointed out by the ld. counsel for the assessee before us show that this company cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue generation and other reasons cited before us. Besides, the reason that turnover of this company is huge and more than 10 times that of the assessee.

The next company sought to be excluded is Mindtree Ltd. The submissions made before us were as follows:- “Functionally dissimilar, diversified operation, significant R&D spend, ownership of intangibles. - Also engaged in business of rendering IP-Led revenue, infrastructure management, package implementation, consultancy services, etc. constituting 45% of overall revenue during FY 2014-15. - Diversified operation i.e. engaged in infrastructure management services, business process management, technology consulting, product engineering and SAP services. Also lacks segmental data.

The DRP while dealing with the aforesaid objections has merely taken the view that the presence of IPR revenue was insignificant and so also expenses of brand value, R&D & intangibles. More importantly, the DRP did not dispute the presence of 46% of revenue from onsite model, but went on to hold that the presence of revenue is not sufficient to exclude a company, when it is otherwise functionally comparable. On this aspect, we have already referred to the decision of the ITAT Bangalore Bench in the case of Trilogy e-business Software India P. Ltd. (supra) and in the light of this decision and the admitted factual position regarding presence of onsite revenue over and above the threshold limit of 25% of total revenue,

The only other issue that was argued before us is non-granting of working capital adjustment. In this regard, the facts are identical and the reasons for non-granting working capital adjustment are also identical. The assessee has given the working capital adjustment calculations and the same are at pages 265 to 291 of the assessee’s PB. These details have not been disputed by the AO as well as the DRP. We are of the view that in the light of the decision rendered on an identical issue while dealing with similar objections raised by the assessee in AY 2014-15, the working capital adjustment should be allowed to the assessee after affording opportunity of being heard to the Assessee. We hold and direct accordingly.

The AO/TPO is directed to compute the ALP after affording opportunity of being heard to the assessee and as per directions contained in this order.

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

Thus, both the appeals are partly allowed.