“working capital adjustment”

Transfer PricingSection 92CSection 92C508 judgments

The decision most relied on for working capital adjustment is Sony India (P) Ltd. v. DCIT (114 ITD 448), cited in 131 judgments on BharatTax.

Leading authorities on working capital adjustment

Sony India (P) Ltd. v. DCIT

114 ITD 448 · 2008 · ITAT

131

citing judgments

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.

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

398 ITR 66 · 2017 · High Court

100

citing judgments

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.

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

109 ITD 101 · 2007 · ITAT

citing judgments

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.

Avenue Asia Advisors Pvt. Ltd. v. DCIT

398 ITR 120 · 2017 · High Court

citing judgments

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.

Indo Rama Synthetics (I) Ltd. v. CIT

330 ITR 363 · 2011 · Supreme Court

citing judgments

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.

Huawei Technologies India Pvt. Ltd. v. JCIT

101 Taxmann.com 313 · 2019 · ITAT

citing judgments

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

75 Taxmann.com 195 · 2016 · Reported

citing judgments

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.

Genesis Integrating Systems India Pvt Ltd. v. DCIT

53 SOT 159 · 2012 · ITAT

citing judgments

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

Netradyne Technology India Private Limited, Bengaluru vs. Income Tax Officer, Ward-5(1)(1), Bengaluru

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

ITA 2258/BANG/2024[2021-22]Status: DisposedITAT Bangalore10 Sept 2025AY 2021-22

Bench: Shri Prashant Maharishi & Shri Keshav Dubeyassessment Year : 2021-22

For Appellant: Shri Suresh Muthukrishnan, ARFor Respondent: Dr. Divya K J, CIT(DR)(ITAT), Bengaluru

Section 143(3)Section 144Section 92C

Provision for doubtful debts and rates and taxes as non-operating in nature. 10. That the learned authorities erred in not granting a working capital adjustment, despite significant differences in receivables, payables, and inventory levels between the Appellant and the selected comparables, thereby impacting the profitability margins. 11. That ... order of the ld. TPO and direction of the ld. DRP. 31. Ground No.10 is with respect to non-granting of working capital adjustment to the assessee. The ld. TPO has dealt with this issue at para 13 wherein it was stated that assessee has not been able to demonstrate

Lowes Services India Private Limited, Bangalore vs. Deputy Commissioner of Income Tax, Circle 4(1)(1), Bangalore

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

ITA 1734/BANG/2024[AY 2020-21]Status: DisposedITAT Bangalore08 Sept 2025

Bench: Shri Prashant Maharishi & Shri Keshav Dubeyassessment Year: 2020-21

For Appellant: Shri Chavali Narayan, ARFor Respondent: Dr. Divya K J, CIT(DR)(ITAT), Bengaluru

Section 143(1)Section 143(3)Section 144CSection 144C(13)Section 144C(5)Section 36(1)(va)Section 80G

comparable companies. This argument has been rejected as per para 15 of the direction of the DRP. He submitted that if working capital adjustment is granted, there cannot be any separate adjustment on account of overdue interest receivable when TNMM is applied as the most appropriate method. 4. that ... assessee is also entitled to raise an issue that if in the international transaction of Software Development Services segment and ITeS segment, working capital adjustment is granted to the assessee, no separate addition is required to be made. Therefore, this aspect is also left to be adjudicated

Future First Info Services Private Ltd., Delhi vs. AO Circle-7(1), Delhi

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 672/DEL/2022[2017-18]Status: DisposedITAT Delhi29 Aug 2025AY 2017-18

Bench: Shri Yogesh Kumar U.S. & Shri Avdhesh Kumar Mishra

Section 143(3)Section 270ASection 92D

erred in ignoring that the operating profit margin earned by the Appellant was higher than the working capital adjusted arm's length margin of comparables at 5.88% thereby subsuming the impact of outstanding receivables. 10. Without prejudice, the Ld. AO/ Ld. TPO and Hon'ble DRP erred in disregarding judicial ... receivables could not be equated with loans as the margin earned was more than the ALP. Alternatively, it was submitted to allow the working capital adjustments and 16 Future First Info Services Pvt. Ltd. LIBOR. It was contended that the TPO had erred in applying SBI Base rate and mark

Garware Fulflex India Pvt Ltd, Mumbai vs. DCIT, Circle 1(1)(1), Mumbai

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

ITA 6751/MUM/2024[2021-22]Status: DisposedITAT Mumbai28 Aug 2025AY 2021-22

Bench: Smt. Beena Pillai () & Shri Om Prakash Kant ()

Section 143(3)Section 144C(13)Section 153

separate analysis. 4. In connection with interest on overdue receivables, the Ld. TPO and the Ld. AO have erred in non- granting/considering working capital adjustment for the comparables which subsumes the impact of outstanding receivables and payables Erred by not allowing/ considering the working capital adjustment to the margins ... that the question of notional or real income does not arise in this context. 5.7 The assessee's further objection, that once a working capital adjustment had been made in the determination of margins under the Transactional Net Margin Method (“TNMM"), no separate adjustment for interest on receivables was warranted

M/S Takata India Pvt. Ltd., New Delhi vs. DCIT, New Delhi

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 6835/DEL/2015[2011-12]Status: DisposedITAT Delhi28 Aug 2025AY 2011-12

Bench: Shri Prakash Chand Yadav & Manish Agarwalassessment Year: 2011-12 Takata India Pvt Ltd., Vs. Dcit, Circle 25(1), (Now Joyson Anand Abhishek New Delhi Safety Systems Pvt Ltd.,) Plot No.20, Sector-5, Imt Manesar, Gurugram (Haryana)-122050 Pan/Gir No. Aacct 7200 N (Appellant) .. ( Respondent)

For Appellant: NoneFor Respondent: Shri S.K.Jadhav, CIT (DR)

Officer (Transfer Pricing Officer) /Ld.DRP have erred in law and in facts and circumstances of the present case by disallowing the use of working capital adjustment to the appellant. 8. That the ld Ld. AO/Transfer Pricing Officer (Transfer Pricing Officer) /Ld.DRP have erred in law and in facts and circumstances

J P Morgan Services India Pvt Ltd, Mumbai vs. DCIT Circle 2(2)(1), Mumbai

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

ITA 6563/MUM/2024[2021-22]Status: DisposedITAT Mumbai26 Aug 2025AY 2021-22

Bench: Shri Sandeep Singh Karhailshri Girish Agrawalj P Morgan Services India Private Limited Tower A Blk 9, Tower B Blk 10, Tower C Blk 11, Nirlon Knowledge Park, Western Express Highway, Goregaon East, Mumbai Suburban, ............... Appellant 400063. Pan : Aabcd0503B V/S Deputy Commissioner Of Income-Tax, Circle 2(2)(1), ……………… Respondent Aayakar Bhawan, Maharshi Karve Road, New Marine Lines, Churchgate, Mumbai-400020. Assessee By : Shri Fenil Bhatt Revenue By : Ms. Neena Jeph, Cit.Dr

For Appellant: Shri Fenil BhattFor Respondent: Ms. Neena Jeph, CIT.DR

Section 143(3)Section 144BSection 144CSection 144C(12)Section 144C(13)Section 144C(5)Section 153Section 92D

facts and circumstances of the case and in law, the Ld.AO/Ld. TPO/Hon'ble DRP erred in not allowing/granting the working capital adjustment. 11. On the facts and circumstances of the case and in law, the Ld.AO/Ld. TPO/Hon'ble DRP erred in not allowing/granting the risk adjustments

ACIT, Circle- 9(1), New Delhi vs. Fis Global Business Solutions India Pvt. Ltd., New Delhi

In the result, the appeal of the Revenue and CO of the assessee are partly allowed as above for statistical purposes

ITA 372/DEL/2018[2009-10]Status: DisposedITAT Delhi25 Aug 2025AY 2009-10

Bench: Shri Sudhir Pareek & Shri Avdhesh Kumar Mishra

interfere with the finding of the Ld. CIT(A) in this regard. Working capital/Risk Adjustment: 46. The last issue is in respect of working capital adjustment. The TPO observing that the assessee was not able to explain satisfactorily the need for working capital adjustment rejected the said claim. Before ... 1716/Del/2014. 47. We have heard both parties and have perused material on the record. We are of the considered view that the working capital adjustment is mandated and is a prerequisite for determination of arm's length price in terms of Rule

Adp Private Limited, Hyderabad vs. DCIT., Circle 1(1), Hyderabad

In the result, appeal of the Assessee is partly allowed

ITA 975/HYD/2024[2020-21]Status: DisposedITAT Hyderabad22 Aug 2025AY 2020-21

Bench: Shri Manjunatha G & Shri Ravish Sood

For Appellant: CA, Sriram SeshadriFor Respondent: MS. U Mini Chandran, CIT-DR

Section 143(3)Section 144C(1)Section 144C(5)Section 153Section 195Section 234ASection 40Section 92C

warranted when the appellant- company has carried-out an entity level TNMM to calculate ALP of international transactions, particularly, when the working capital adjustment have already been made by the appellant-company. In this regard, he relied upon the decisions of Hon’ble Delhi High Court in the case

Red Hat India Private Limited, Mumbai vs. Assistant Commissioner of Income Tax/ITO/ Circle 15(3)(1), Mumbai

In the result, the appeal of the assessee is treated as partly allowed for statistical purposes

ITA 2442/MUM/2022[2018-19]Status: DisposedITAT Mumbai22 Aug 2025AY 2018-19

Bench: Shri Amit Shukla & Shri Arun Khodpiaassessment Year : 2018-19 Red Hat India Private Limited, Asst. Commissioner Of A-201, Supreme Business Park, Income Tax/Income Tax Officer, Supreme City, Vs. Circle-15(3)(1), Hiranandani Gardens, Mumbai. Powai, Mumbai-400076. Pan : Aabcr7097N (Appellant) (Respondent) For Assessee : Shri Ajit Jain, For Revenue : Shri Pankaj Kumar, Cit-Dr Date Of Hearing : 13-08-2025 Date Of Pronouncement : 22-08-2025 O R D E R Per Amit Shukla, J.M : The Aforesaid Appeal Has Been Filed By The Assessee Against The Final Assessment Order Dated 27/07/2022 Passed By The Acit, Circle 15(3)(1) Mumbai, U/S 144C(13) For The A.Y. 2018-19, In Pursuance To The Directions Issued By The Dispute Resolution Panel-2, Mumbai-2, Dated 15/06/2022 U/S 144C(5).

For Appellant: Shri Ajit JainFor Respondent: Shri Pankaj Kumar, CIT-DR

Section 144C(13)Section 144C(5)

InnovanaThinklabs Limited 23.45 Virtual Galaxy Infotech Private 3 14.56 Limited Mean 17.11 4 Red Hat India Private Limited Ld. TPO also rejected the working capital adjustment to assessee. The Ld.TPO thus proposed an adjustment of Rs.36,38,47,496/- being the shortfall in the revenue. FAR and benchmarking of Payment ... People Combine Educational Initiatives Pvt. Ltd. 30.32 35th Percentile 17.45 Median 20.49 65th Percentile 23.72 The Ld. TPO rejected the working capital adjustment to assessee. The Ld. TPO thus proposed an adjustment of Rs. 3,34,88,325/- being the shortfall in the revenue. FAR and benchmarking of Provision

Te Connectivity Services India Private Limited, Bangalore vs. DCIT Circle, 7(1)(1), Bangalore

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

ITA 1887/BANG/2024[2020-21]Status: DisposedITAT Bangalore18 Aug 2025AY 2020-21

Bench: Shri Prashant Maharishi & Shri Soundararajan K.

For Appellant: S/Shri Sriram Sheshadri & Vinay Jain, CAsFor Respondent: Smt. Suganthamala T M, CIT(DR)(ITAT), Bengaluru

Section 143(2)Section 144CSection 40Section 92C

order passed u/s 92CA(3). He further referred to para 13 of the TPO’s order wherein the assessee has asked for working capital adjustment. It was submitted that the ld. TPO has not granted such working capital adjustment. If the working capital adjustment is granted to the assessee ... adjustment would not have been made on this count. He submitted that in the TP Study Report the assessee has claimed working capital adjustment. He submits that at page 46 a detailed note of working capital adjustment is provided wherein if the working capital adjustment is provided, the median margin

Schneider Electric India Private Limited, Gurgaon vs. ACIT Circle 22(2), New Delhi

In the result, the appeal of appellant/assessee is allowed for statistical

ITA 2187/DEL/2023[2008-09]Status: DisposedITAT Delhi13 Aug 2025AY 2008-09

Bench: Shri S Rifaur Rahman & Shri Vimal Kumar

For Appellant: Shri Rohit Tiwari & Ms. Tanya, AdvsFor Respondent: Shri Dharm Veer Singh, CIT (DR)

Section 10ASection 143(3)Section 250Section 92C

should be re-determined; and 5.10. ignoring the differences in working capital employed by the comparable companies and the Appellant and not allowing working capital adjustment; and 5.11. not allowing adjustment with respect to capacity utilization in determining the arm's length. ITA No.2187/Del/2023 Contract R&D support services segment ... functions performed, assets employed and risks assumed; 6.7. making certain computational errors while arriving at the ALP; 6.8. not providing the benefit of working capital adjustment while computing the ALP as provided by the Ld. TPO to the Appellant in subsequent assessment years, thereby disregarding the law, international guidance

Xilinx India Technology Services Private Limited, Hyderabad vs. Dy. Commissioner of Income Tax, Circle-17(2), Hyderabad

In the result, the appeals filed by the assessee is partly allowed

ITA 1761/HYD/2019[2015-16]Status: DisposedITAT Hyderabad08 Aug 2025AY 2015-16

For Appellant: Shri SP Chidambaram, AdvocateFor Respondent: Shri B. Bala Krishna, CIT-DR

Section 143(3)Section 144C(5)Section 92C

comparable companies selected by the TPO and not allowing risk adjustment as per the provisions of Rule 10B(1)(e) of the Rules. Working capital adjustment 19. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in not granting working capital adjustment ... after granting due opportunity of hearing to the Assessee. 21. Ground no. 19 raised by the assessee pertains to the non-grant of Working Capital Adjustment (“WCA") while determining the ALP. The Ld. AR submitted that the assessee had duly furnished the complete workings and justification for WCA both before

Sony India Private Limited, New Delhi vs. ACIT, Circle-22(2), Delhi

ITA 2052/DEL/2022[2018-19]Status: DisposedITAT Delhi08 Aug 2025AY 2018-19

Bench: Shri Anubhav Sharma & Shri Manish Agarwal

For Appellant: Shri Nageshwar Rao, Advocate &For Respondent: Shri S.K. Jhadav, CIT-DR

Section 143(3)

10TA while computing net margins of companies considered comparable. 16. Without prejudice to all other grounds, impugned order errs in considering erroneously computed working capital adjusted net margins of companies considered comparable to the distribution activity. Transfer Pricing Adjustment in respect of international transaction for Marketing and Development of Market

Sony India Private Limited, New Delhi vs. ACIT, Circle-22(2), Delhi

ITA 1688/DEL/2022[2017-18]Status: DisposedITAT Delhi08 Aug 2025AY 2017-18

Bench: Shri Anubhav Sharma & Shri Manish Agarwal

For Appellant: Shri Nageshwar Rao, Advocate &For Respondent: Shri S.K. Jhadav, CIT-DR

Section 143(3)

Sony India Pvt. Ltd., New Delhi vs. ACIT Circle-24(1), New Delhi

ITA 9080/DEL/2019[2015-16]Status: DisposedITAT Delhi08 Aug 2025AY 2015-16

Bench: Shri Anubhav Sharma & Shri Manish Agarwal

For Respondent: Shri S.K. Jhadav, CIT-DR

Section 143(3)

Fedex Express Transportation and Supply Chain Services (India) Private Limited, Mumbai vs. ACIT 1(3)(1), Mumbai

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

ITA 4783/MUM/2024[2020-21]Status: DisposedITAT Mumbai30 Jul 2025AY 2020-21

Bench: Smt. Beena Pillai () & Shri Girish Agrawal ()

Section 143(3)Section 144Section 144BSection 144C(1)Section 144C(13)Section 92CSection 92C(3)

relevant segment, when dealing with third parties, and that notional income cannot be taxed. 3.6. The lower authorities erred in not granting the working capital adjustment sought by the Appellant, as claimed in its transfer pricing study report in light of Rule 10(B)(2) of the Income Tax Rules ... grounds 3 - 3.5 raised by the assessee stands partly allowed. 9. Ground no. 3.6 raised by the assessee is on non granting of working capital adjustments. 9.1 The Ld.AR placed reliance on the decision of Coordinate Bench of this Tribunal in case of Red Hat India Pvt. Ltd. Vs. ACIT

Uil Electronics India Private Limited, Gautam Budh Nagar vs. ACIT, DCIT, NFAC, Drp, Civic Center, New Delhi

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 3712/DEL/2024[2020-21]Status: DisposedITAT Delhi30 Jul 2025AY 2020-21

Bench: SHRI PRAKASH CHAND YADAV (Judicial Member), SHRI MANISH AGARWAL (Accountant Member)

comparable who are having expenses in the field of R&D equivalent to 2% of the net sell. (b) non-providing of working capital adjustment to the assessee by the TPO. 3. Ld. Counsel for the assessee appearing on behalf of the assessee. Vehemently argued that ... filter may kindly be provided. Similarly, the Counsel for assesse vehemently argued that both the authorities have failed to appreciate that if the working capital adjustment filter would be given to the assessee then no further adjustment is called for in this case. 4. Ld. DR relied upon the orders

Signode India Limited, Hyderabad vs. ACIT., Circle 3(1), Hyderabad

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

ITA 1376/HYD/2024[2021-22]Status: DisposedITAT Hyderabad25 Jul 2025AY 2021-22

Bench: Shri Vijay Pal Rao & Shri Madhusudan Sawdia

For Appellant: Shri H. Srinivasulu, C.AFor Respondent: Dr. Sachin Kumar, SR-DR

Section 143(3)Section 144BSection 144C(13)Section 153Section 92C(3)

Considering that the credit period allowed is closely and inextricably linked to the main transaction of sales / services, the margins already reflect the working capital adjustment. 5. On the facts and circumstances of the case and contrary to law, the Ld. AO / Ld. TPO erred ... considered to bring parity in the working capital investment of the assessee and the comparables rather than looking at the receivable independently. Such working capital adjustment takes into account the impact of outstanding receivables on the profitability. In this regard, the reliance is placed on the following rulings wherein

Samsung Sdi India Pvt Ltd., Noida vs. DCIT, Circle-5(2)(1), Noida

In the result, appeal of the assessee is partly allowed

ITA 5475/DEL/2024[2021-22]Status: DisposedITAT Delhi18 Jul 2025AY 2021-22

Bench: Shri Challa Nagendra Prasad & Shri Manish Agarwal

Section 143(1)Section 143(3)Section 92C

Rule 10B(3) to account for material differences in the comparables vis-à-vis the Assessee including the working capital adjustment. 7. That the Ld. DRP has erred in not adjudicating the issue of working capital adjustment and thus, has violated the principles of natural justice. 8. That

Samsung Sdi India Pvt Ltd, Noida vs. Assessment Unit, Income-Tax Department, National Faceless Assessment Centre New Delhi, New Delhi

ITA 3472/DEL/2024[2020-21]Status: DisposedITAT Delhi18 Jul 2025AY 2020-21

Bench: Shri Challa Nagendra Prasad & Shri Manish Agarwal

Section 143(1)Section 143(3)Section 92C