“ working capital adjustment ”

Pr. CIT v. Kusum Health Care Pvt. Ltd.

For transfer pricing purposes, functionally dissimilar entities that have significant business differences must be excluded from the list of comparables for benchmarking analysis. It also provides guidance on the non-allocation of advertisement, marketing, and promotion (AMP) expenses to other entities when incurred solely for the assessee's business.

398 ITR 66 · 2017 · High Court

100

Mentor Graphics (Noida) (P) Ltd. v. DCIT

Not every item of receivables appearing in the accounts of an entity dealing with foreign associated enterprises automatically constitutes an international transaction under Section 92B. A separate adjustment for interest on outstanding receivables is not permissible if the working capital adjustment has already factored in their impact.

109 ITD 101 · 2007 · ITAT

Avenue Asia Advisors Pvt. Ltd. v. DCIT

A working capital adjustment is mandated and a prerequisite for correctly determining the Arm's Length Price (ALP) under Rule 10B(1)(e) and Rule 10B(3) of the Income Tax Rules, 1962. This adjustment accounts for differences in working capital and outstanding receivables between the assessee and comparable companies.

398 ITR 120 · 2017 · High Court

Indo Rama Synthetics (I) Ltd. v. CIT

The Delhi High Court holds that a detailed functional and working capital analysis, considering various factors, is essential before treating outstanding receivables as a separate international transaction for transfer pricing adjustments on notional interest. Simply making an adjustment based on receivables alone without such study distorts the transaction's character.

330 ITR 363 · 2011 · Supreme Court

Huawei Technologies India Pvt. Ltd. v. JCIT

For Minimum Alternate Tax (MAT) under Section 115JB, the book profit must reflect the true working results of the company. Capital receipts that are not income cannot be included in book profit, and adjustments based on notes on accounts can be made to arrive at the real profit.

101 Taxmann.com 313 · 2019 · ITAT

75 Taxmann.com 195 · 2016 · Reported

Working capital adjustments are permissible and crucial for comparability analysis when determining the arm's length price of international transactions, especially when an assessee's claim for such adjustment has been denied.

ITO v. E Value Serve.com

Genesis Integrating Systems India Pvt Ltd. v. DCIT

In transfer pricing analysis, demanding daily balances for working capital adjustments is impractical and improper; adjustments should be based on opening and closing working capital. Transfer pricing inherently involves estimation to ensure comparability.

53 SOT 159 · 2012 · ITAT

ITA 608/BANG/2016[2011-12]Status: DisposedITAT Bangalore02 Feb 2022AY 2011-12

Companies with significantly different turnovers (e.g., one above Rs. 200 crores and another below) cannot be considered comparable in transfer pricing analysis. Turnover is a relevant factor in assessing comparability.

Judgments citing working capital adjustment

M/S Robert Bosch Engineering and Business Solutions Private Limited, Bangalore vs. DCIT, Bangalore

In the result, the appeal filed by assessee stands allowed as indicated above and the appeal filed by revenue stands dismissed

Bench: Shri. Chandra Poojari & Smt. Beena Pillaiit(Tp)A No. 608/Bang/2016 Assessment Year : 2011-12 M/S. Robert Bosch The Deputy Engineering & Business Commissioner Of Solutions Pvt. Ltd., Income Tax, #123, Industrial Layout, Large Tax Payers Unit, Hosur Road, Koramangala, Circle 1, Bangalore – 560095. Vs. Bangalore. Pan: Aaacr7108R Appellant Respondent & It(Tp)A No. 445/Bang/2016 Assessment Year : 2011-12 (By Revenue) : Shri Percy Padiwala, Sr. Assessee By Advocate : Shri Sumer Singh Meena, Cit Revenue By Dr (Osd) Date Of Hearing : 20-12-2021 Date Of Pronouncement : 02-02-2022 Order Per Beena Pillaipresent Cross Appeals Are Filed By Assessee As Well As Revenue Against The Final Assessment Order Dated 28.01.2016 By The Ld.Dcit, Ltu, Circle -1, Bangalore U/S. 143(3) R.W.S. 144C Of The Act For Assessment Year 2011-12. In Revenue’S Appeal, The Following Grounds Are Raised. “1. The Directions Of Drp Is Opposed To Law & Facts Of The Case.

Section 10ASection 143(3)Section 144CSection 14ASection 80J

total sales as applied by the learned TPO at the time of Assessment Proceedings b) Not considering corrected operating profit mark-up and working capital adjustment for computing the average operating profit mark-up earned by comparable companies, and thereby erred in computing the transfer pricing adjustment 16. That

DCIT, Bangalore vs. M/S Robert Bosch Engineering & Business Solutions Private Limited, Bangalore

In the result, the appeal filed by assessee stands allowed as indicated above and the appeal filed by revenue stands dismissed

ITA 445/BANG/2016[2011-12]Status: DisposedITAT Bangalore02 Feb 2022AY 2011-12

Section 10ASection 143(3)Section 144CSection 14ASection 80J

M/S. Acusis Software India Private Limited, Bengaluru vs. Deputy Commissioner of Income Tax, Circle-1(1)(2), Bengaluru

ITA 2702/BANG/2017[2013-14]Status: DisposedITAT Bangalore01 Feb 2022AY 2013-14

Bench: Shri. Chandra Poojari & Smt. Beena Pillaiit(Tp)A No. 2702/Bang/2017 Assessment Year : 2013-14 M/S. Acusis Software India The Deputy Pvt. Ltd., Commissioner Of No. 17/2, Dollars Chamber, Income Tax, Lalbagh Road, Circle – 1(1)(2), Bangalore – 560 027. Bangalore. Vs. Pan: Aadca2415P Appellant Respondent Assessee By : Shri Chavali Narayan, Ca : Shri Sumer Singh Meena, Cit Revenue By (Dr) Date Of Hearing : 01-02-2022 Date Of Pronouncement : 01-02-2022 Order Per Beena Pillaipresent Appeal By The Assessee Has Been Filed By Assessee Against The Final Assessment Order 12.10.2017 Passed By The Ld.Dcit, Circle-1(1)(2), Bangalore Relating To Assessment Year 2013-14 On Following Revised & Modified Grounds Of Appeal: “Based On The Facts & Circumstances Of The Case & In Law. Acusis Software India Private Limited (Hereinafter Referred To As 'Appellant). Respectfully Craves Leave To Prefer An Appeal Against The Appeal Order Passed By The Learned Assessing Officer [Hereinafter Referred To As The 'Learned Ao'] Under Section 143(3) Read With Section 144C Of The Income-Tax Act. 1961 ('The Act') On The Following Grounds:

For Appellant: Shri Chavali Narayan, CA

Section 133(6)Section 143(3)Section 144CSection 271(1)(c)

provision for doubtful debts/advances as non- operating in nature. 9. The learned AO/ TPO erred, in law and in facts. by undertaking negative working capital adjustment. 10. The learned AO/ TPO erred, in law and facts, by not making suitable adjustments to account for differences in the risk profile ... Limited Tech Mahindra Limited (Segmental) 22.27% 7. e4e Healthcare Business Private Limited 17.26% 8. Infosys BPO Limited 29.28% 9. Arithmetic Mean 20.64% Less: Working capital Adjustment -1.44% Adjusted arithmetic mean 22.08% The Ld.TPO undertook negative working capital adjustment and no risk adjustment was granted to assessee. In the draft assessment

Global E Business Operations Private Limited, Bangalore vs. DCIT, Bangalore

In the result, the revenue’s appeal is partly allowed for statistical purposes

ITA 418/BANG/2016[2011-12]Status: DisposedITAT Bangalore31 Jan 2022AY 2011-12

Bench: Shri Chandra Poojari & Smt. Beena Pillai

For Appellant: Shri Sharath Rao, CAFor Respondent: Shri Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru

Section 10ASection 143(3)

charged interest on the same, the learned AO / TPO and Honorable DRP have erred in law and on facts in ignoring that the working capital adjustment takes care of the difference on account of outstanding debtors/ creditors and the same does not IT(TP)A No.418 & 250/Bang/2016 Page ... directed the learned AO / TPO to delete the adjustment on account of notional interest on outstanding debtors from AE's stating that working capital adjustment takes care of the differences on account of outstanding debtors / creditors and therefore, does not warrant an additional adjustment by way of charging interest

Asst.C.I.T., Bangalore vs. M/S Global E- Business Operations Pvt. Ltd., Bangalore

In the result, the revenue’s appeal is partly allowed for statistical purposes

ITA 250/BANG/2016[2011-12]Status: DisposedITAT Bangalore31 Jan 2022AY 2011-12

Bench: Shri Chandra Poojari & Smt. Beena Pillai

For Appellant: Shri Sharath Rao, CAFor Respondent: Shri Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru

Section 10ASection 143(3)

Bharti Airtel Services Ltd., New Delhi vs. DCIT, Circle-4(2), New Delhi

ITA 6272/DEL/2018[2012-13]Status: DisposedITAT Delhi31 Jan 2022AY 2012-13

Bench: Shri Amit Shukla & Dr. B.R.R. Kumar(Through Video Conferencing)

For Appellant: S/Shri Rahul Mitra, NininFor Respondent: Shri Mrinal Kumar Das

ITA 3183/DEL/2018[2013-14]Status: DisposedITAT Delhi31 Jan 2022AY 2013-14

contention has been raised vide ground No. 8 in assessment year 2012-13; and ground No. 4 in assessment year 2013-14, that working capital adjustment irons out the credit period extended to AEs and non AEs and hence no adjustment is called for on the facts of the case ... submitted that the working capital adjustment based on the net margin profit of the comparables has been arrived at 4.50% as against the net profit margin earned by the assessee of 9.26% for the assessment year 2012- 13 which is significantly higher than the adjustment margin earned by the comparable

Bharti Airtel Services Ltd., Gurgaon vs. DCIT, Circle-4(2), New Delhi

Bench: Shri Amit Shukla & Dr. B.R.R. Kumar(Through Video Conferencing)

For Appellant: S/Shri Rahul Mitra, NininFor Respondent: Shri Mrinal Kumar Das

ITA 397/BANG/2021[2016-17]Status: DisposedITAT Bangalore21 Jan 2022AY 2016-17

Swiss Re Global Business Solutions India Private Limited, Bengaluru vs. Deputy Commissioner of Income Tax, Circle-6(1)(2), Bangalore

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

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Nageswar Rao, AdvocateFor Respondent: Shri Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru

Section 133(6)

computing notional interest on such trade receivables; 16. Learned AO / TPO / DRP have erred, in law and facts, by not appreciating that the working capital adjustment undertaken by the Appellant in its Transfer Pricing documentation would take into consideration impact of credit period extended to the customers, and therefore ... observed that payments to assessee are not contingent upon payment received by AEs from their respective customers. Further Ld.AR submitted that working capital adjustment undertaken by assessee includes the adjustment regarding the receivables and thus receivables arising out of such transaction have already been accounted for. Alternatively, he submitted that

Dhr Holding India Pvt. Ltd., New Delhi vs. Addl.CIT, Special Range-3, New Delhi

In the result, the appeal filed by the assessee is allowed

ITA 1614/DEL/2018[2013-14]Status: DisposedITAT Delhi21 Jan 2022AY 2013-14

Bench: Shri Amit Shukla & Dr. B.R.R. Kumar

For Appellant: Shri Ajit Jain, CAFor Respondent: Shri Surender Pal, CIT DR

Section 143(3)Section 271Section 92BSection 92C

provisions of section 92B of the Act; 3.2 Rejecting the assessee's plea that the issue of outstanding receivables is subsumed in the working capital adjustment granted to the assessee and no separate adjustment on account of outstanding receivables is called for and; 3 3.3 The principal transactions have already ... month LIBOR plus 400 basis points, reducing the adjustment to INR 4,48,739/-. 9 10. The Ld. AR submitted that working capital adjustment has been provided by the Ld. DRP for the services segment which already takes into account the impact of outstanding receivables, which is line with

Cisco Systems Services B.V, Bangalore vs. Deputy Commissioner of Income Tax International Taxation Circle-1(1), Bangalore

In the result, the appeal by the assessee is allowed

ITA 961/BANG/2017[2012-13]Status: DisposedITAT Bangalore19 Jan 2022AY 2012-13

Bench: Shri. Chandra Poojari & Smt. Beena Pillaiit(It)A No. 961/Bang/2017 Assessment Year : 2012-13 M/S. Cisco Systems Services B.V. – India The Deputy Branch, Commissioner Of Brigade South Parade, Income Tax, No. 10, International Taxation, Mahatma Gandhi Road, Circle – 1(1), Vs. Bangalore – 560 001. Bangalore. Pan: Aaccc4836D Appellant Respondent Assessee By : Shri Rajan Vora, Ca : Dr. Manjunath Karkaihalli, Revenue By Cit Dr Date Of Hearing : 19-01-2022 Date Of Pronouncement : 19-01-2022 Order Per Beena Pillaithis Appeal By Assessee Is Directed Against The Order Of The Ld.Ao Dated 27.02.2017 Passed U/S. 143(3) R.W.S. 144C(14) Of The Income- Tax Act, 1961 [The Act] On The Following Grounds: “Based On The Facts & Circumstances Of The Case & In Law, Cisco Systems Services B.V. - India Branch (Hereinafter Referred To As The 'Appellant.) Respectfully Craves Leave To Prefer An Appeal Against The Order Passed By The Deputy Commissioner Of Income-Tax (International Taxation) - Circle 1(1) ('Assessing Officer' Or 'Ao') Dated February 27, 2017 In Pursuance Of The Directions & The Revised Directions Issued By The Dispute Resolution Panel ('Drp'), Bangalore Dated December 29, 2016 & January 16. 2017 Respectively, Under Section 253 Of The Income-Tax Act, 1961 ('Act) On The Following Grounds:

For Appellant: Shri Rajan Vora, CA

Section 143(3)Section 253Section 92C

high end & low end services. 4. The learned AO/TPO have erred, in law and in facts. by making negative working capital adjustment in relation to the services provided by the Appellant without appreciating the fact that the Appellant is a captive service provider and does not bear any working capital

Xchanging Solutions Limited, Bangalore vs. ITO, Bangalore

In the result, the appeals of the assessee are partly allowed and that of the revenue are dismissed

ITA 556/BANG/2016[2011-12]Status: DisposedITAT Bangalore19 Jan 2022AY 2011-12

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Vikram Raghavan, AdvocateFor Respondent: Shri Arunkumar, CIT(DR)(TP)(ITAT), Bengaluru

ITA 402/BANG/2016[2011-12]Status: DisposedITAT Bangalore19 Jan 2022AY 2011-12

Assessee and the comparables. 10. The learned AO and the learned TPO have erred, in law and in facts, by incorrectly computing the working capital adjustment benefit for software development services transaction. IT(TP)A No.492 & 451/B/2015 & 402 & 556/B/2016 Page 18 of 37 11. The learned AO and the learned

ITO, Bangalore vs. M/S Xchanging Solutions Ltd., Bangalore

In the result, the appeals of the assessee are partly allowed and that of the revenue are dismissed

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Vikram Raghavan, AdvocateFor Respondent: Shri Arunkumar, CIT(DR)(TP)(ITAT), Bengaluru

ITA 492/BANG/2015[2010-11]Status: DisposedITAT Bangalore19 Jan 2022AY 2010-11

Xchanging Solutions Limited, Bangalore vs. DCIT, Bangalore

In the result, the appeals of the assessee are partly allowed and that of the revenue are dismissed

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Vikram Raghavan, AdvocateFor Respondent: Shri Arunkumar, CIT(DR)(TP)(ITAT), Bengaluru

ITA 459/BANG/2015[2010-11]Status: DisposedITAT Bangalore19 Jan 2022AY 2010-11

DCIT, Bangalore vs. M/S Xchanging Solutions Ltd., Bangalore

In the result, the appeals of the assessee are partly allowed and that of the revenue are dismissed

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Vikram Raghavan, AdvocateFor Respondent: Shri Arunkumar, CIT(DR)(TP)(ITAT), Bengaluru

ITA 227/BANG/2021[2016-17]Status: DisposedITAT Bangalore12 Jan 2022AY 2016-17

Cenduit (India) Services Private Limited, Bangalore vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1), Bangalore

In the result, the assessee’s appeal is partly allowed for statistical purposes

Bench: Shri N.V. Vasudevan & Shri Chandra Poojari

For Appellant: Shri Ketan K. Ved, CAFor Respondent: Shri Sunil Kumar Singh, CIT(DR)(ITAT), Bengaluru

ITA 1460/DEL/2014[2009-10]Status: DisposedITAT Delhi10 Jan 2022AY 2009-10

operating expense. 10. The Ld. AO and Ld. TPO erred in law and on facts, in not allowing market risk and working capital adjustment thereby disregarding the difference in risk profile of the Appellant and alleged comparable companies. Grounds of appeal relating to corporate tax adjustment 11. Non-grant

Serco India Pvt. Ltd., Gurgaon vs. DCIT, Gurgaon

In the result, the appeal of the assessee is allowed

Bench: Sh. Saktijit Deydr. B. R. R. Kumarita No. 1460/Del/2014 : Asstt. Year : 2009-10 Serco India Pvt. Ltd., Vs Dcit, 6Th Floor, Tower-B, Building No. 8, Circle-2, Dlf Cyber City, Phase-Ii, Gurgaon Gurgaon (Appellant) (Respondent) Pan No. Aajcs6704P Assessee By : Sh. Suraj Bhan Nain, Ca Revenue By : Sh. M. Baranwal, Sr. Dr Date Of Hearing: 04.01.2022 Date Of Pronouncement: 10.01.2022

For Appellant: Sh. Suraj Bhan Nain, CAFor Respondent: Sh. M. Baranwal, Sr. DR

Section 10ASection 143(3)Section 144C(13)Section 234BSection 271(1)(c)Section 92C

cogent and sufficient reasoning; 4.4 selecting companies which were not comparable to the Appellant on various grounds; 4.5 not allowing the benefit of working capital adjustment since the Appellant being a service company; 4.6 confirming the selection of current year (i. e. financial year 2008-09) data for comparability

Nomura Services India P. Ltd, Mumbai vs. DCIT 10(3), Mumbai

In the result, the appeal filed by the assessee is partly allowed for statistical purposes

ITA 2303/MUM/2013[2008-09]Status: DisposedITAT Mumbai06 Jan 2022AY 2008-09

Bench: Shri Pramod Kumar & Shri Pavan Kumar Gadalenomura Services India Vs. Dcit – Circle 10(3) Pvt Ltd., Aayakar Bhavan, 10Th Floor, Nomura, Mk Road, Off High Street, Mumbai – 400020. Hiranandani Business Park, Powai, Mumbai – 400076. "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aabcl0053C Appellant .. Respondent Appellant By : Mr.Faruk Irani & Mr Sumin Mehta.Ar Respondent By : Mrs.Vatsala Jha. Dr Date Of Hearing 23.11.2021 Date Of Pronouncement 10.01.2022 आदेश / O R D E R Per Pavan Kumar Gadale Jm: The Assessee Has Filed The Appeal Against The Order Passed U/S 143(3) R.W.S 144C(13) Of The Act In Pursuance To Directions Of The Dispute Resolution Panel (Drp) U/Sec144C(5) Of The Act Dated 07.09.2012. Nomura Services India P Ltd., Mumbai. 2. The Assessee Has Filed The Fallowing Grounds Of Appeal As Under:

For Appellant: Mr.Faruk Irani &For Respondent: Mrs.Vatsala Jha. DR