“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

Aristocrat Technologies India Private Limited, Noida vs. DCIT, Circle-5(1)(1), Noida

In the result, appeal of the assessee is partly allowed in the terms aforesaid

ITA 3091/DEL/2024[2020-21]Status: DisposedITAT Delhi03 Jul 2025AY 2020-21

Bench: Shri Vikas Awasthy & Shri Avdhesh Kumar Mishraआअसं.3091/िद"ी/2024(िन.व. 2020-21) Aristocrat Technologies India P. Ltd., 8Tgh To 10Th Floor, Tower-11A, Plot No. 20 & 21, Candor Techspace, It/Ites Sez Complex, Sector-135, Noida, Up 201304 ...... अपीलाथ"/Appellant Pan: Aahca-9200-G बनाम Vs. Deputy Commissioner Of Income Tax, ..... "ितवादी/Respondent Circle-5(1)(1), Noida, Up Assessee By : Shri Atul Jain, Chartered Accountant Ms. Nishi Bhutani & Ms.Preeti Agnihotri, Chartered Accountants Department By : S/Shri S.K. Jhadav, Cit(Dr) & Rajesh Kumar Dhaneshta, Sr.Dr सुनवाई क" ितिथ/ Date Of Hearing : 04/04/2025 घोषणा क" ितिथ/ Date Of Pronouncement : : 03/07/2025 आदेश/Order Per Vikas Awasthy, Jm: This Appeal By The Assessee Is Directed Against The Assessment Order Dated 27.05.2024 Passed U/S. 143(3) R.W.S. 144C(13) R.W.S 144B Of The Income Tax Act,1961(Hereinafter Referred To As ‘The Act’). 2. The Facts Of The Case In Brief As Emanating From Records Are: The Assessee Is Engaged In Providing Design & Development Services To Its Associated Enterprises (Ae’S). The Assessee Is Also Rendering Global It Services To Its Ae’S

For Appellant: Shri Atul Jain, Chartered AccountantFor Respondent: S/Shri S.K. Jhadav, CIT(DR) & Rajesh Kumar Dhaneshta, Sr.DR

Section 143(3)Section 234BSection 270A

With respect to the ground of appeal no. 7 & 8 considering outstanding receivables as separate international transaction, the ld. Counsel submits that working capital adjustment takes into account outstanding receivables accordingly no separate adjustment is warranted for imputing interest on outstanding receivables beyond agreed credit period. He further pointed that ... working capital adjustment has already been allowed by the DRP which was duly given effect by the TPO in the order giving effect to DRP directions passed u/s. 144C of the Act dated 24.05.2024. He further placed reliance on the decision rendered in the case of Kusum Healthcare

Invesco(India) Private Limited, Hyderabad vs. DCIT, Circle -2 (1), Hyderabad

In the result, appeal of the Assessee is partly allowed for statistical purposes

ITA 111/HYD/2022[2017-18]Status: DisposedITAT Hyderabad30 Jun 2025AY 2017-18

Bench: Shri Vijay Pal Rao & Shri Manjunatha G

For Appellant: CA, Sriram SeshadriFor Respondent: Shri B Bala Krishna, CIT-DR

Section 143(3)Section 144C(5)

transaction and under the Transaction Net Margin method (TNMM) for determination of ALP of the services, the impact of outstanding, receivables on the working capital adjustments is already taken into account and that there is no requirement to impute interest on outstanding receivables separately

Mmsh Clinical Research Private Limited, Bangalore vs. DCIT, Circle 2(2)(1), Bangalore

In the result, appeal of the assessee is allowed as indicated above

ITA 2586/BANG/2024[2021-22]Status: DisposedITAT Bangalore30 Jun 2025AY 2021-22

Bench: Shri Waseem Ahmed & Shri Prakash Chand Yadavassessment Year: 2021-22

For Appellant: Sri Vibhor Ghai V.G., A.RFor Respondent: Dr. K.J. Divya, D.R

Section 143(3)Section 144CSection 92C

required under section 92CA (l ) of the Act. 2. The Ld. AO / Ld. TPO erred in fact and in law by disregarding the working capital adjustment proposed by the Assessee, which is critical for ensuring a fair and accurate determination of the arm's length price thus making an addition ... specific adjudication. 9. In ground No.2, the assessee has questioned the action of AO/TPO/DRP with respect to the contention of the assessee that working capital adjustment should be taken into consideration while selecting the comparables. 10. Ld. Counsel for the assessee has drawn the attention of the bench towards

Optiva India Technologies Pvt. Ltd., Pune vs. ACIT, Circle - 2, Pune

In the result, appeal of the assessee is allowed

ITA 634/PUN/2022[2018-19]Status: DisposedITAT Pune25 Jun 2025AY 2018-19

Bench: Dr.Manish Borad & Ms. Astha Chandraआयकर अपील सं. / Ita No.634/Pun/2022 Assessment Year : 2018-19

For Appellant: Shri Darpan Kirpalani and Ms. Ashwani NalheFor Respondent: Shri Prakash L. Pathade

Section 143(3)

that reliance cannot be placed on the website of the Companies for the purpose of undertaking analysis to determine comparability with the Appellant. Working capital adjusted operating margins of comparable companies 6. On the facts and circumstances of the case, the Ld. AO/TPO erred in erroneously concluding that the Appellant ... requested for a working capital adjustment. 7. Without prejudice to Ground no. 6, based on the facts and circumstances of the case, the Ld. AO/TPO erred in undertaking the working capital adjustment without providing the working/back-up computation and documents of the unadjusted as well as adjusted margins of the companies

Fil India Business & Research Pvt. Ltd., Delhi vs. DCIT, Circle 2(1), C.R Building, Delhi

The appeal of the assesse is partly allowed

ITA 1948/DEL/2021[2017-18]Status: DisposedITAT Delhi25 Jun 2025AY 2017-18

Bench: Shri Anubhav Sharma & Shri Manish Agarwal

Section 143(3)Section 144CSection 920Section 92CSection 92C(3)

even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed, 2.9. denying the benefit of working capital adjustment to the Appellant by not computing the margins of the comparables in a consistent manner; 2.10 denying the benefit of risk adjustment

Dic Fine Chemicals Pvt. Ltd., Kolkata vs. D.C.I.T., Circle - 11(1), Kolkata

Appeal of the assessee is partly allowed

ITA 1966/KOL/2024[2020-2021]Status: DisposedITAT Kolkata23 Jun 2025AY 2020-2021

Bench: SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER SHRI SANJAY AWASTHI (Accountant Member)

Section 143(3)Section 144C(1)Section 153Section 69Section 69A

that on the facts and in the circumstances of the case and in law, the TPO grossly erred in not making suitable working capital adjustment, as directed by the 3 DIC Fine Chemicals Pvt. Ltd. Ld. DRP and therefore it is urged that the working capital adjustment computed

D S Trading, Ahmedabad vs. The ITO, Ward-1(1)(1), Ahmedabad

In the result, appeal of the assessee is allowed

ITA 1885/AHD/2024[2021-22]Status: DisposedITAT Ahmedabad20 Jun 2025AY 2021-22

Bench: Dr. B.R.R. Kumar, Vice-Ms. Suchitra Kamble

For Appellant: Shri Dhinal Shah, ARFor Respondent: Shri Prathvi Raj Meena, CIT-DR

Section 143(3)Section 271A

learned AO / Hon'ble DRP has erred in facts and circumstances of the case and in law, in not considering the fact that working capital adjustment appropriately takes into account the outstanding receivable and hence, separate TP adjustment is unwarranted. 2.7. Without prejudice, the learned

Aon Consulting Private Limited, Delhi vs. Assistant Commissoner of Income Tax, Circle 1(1), Delhi

In the result, the appeal of the assessee is allowed as indicated

ITA 4415/DEL/2024[2020-21]Status: DisposedITAT Delhi20 Jun 2025AY 2020-21

Bench: Shri Prakash Chand Yadav & Shri Brajesh Kumar Singh

Section 143(1)Section 143(3)Section 144C(13)Section 14ASection 154Section 253

That on the facts and circumstances of the case and in law, the Ld. AO/TPO/DRP erred in not appreciating that once a working capital adjustment is performed on the margins of comparable companies, separate determination of arm's length price of outstanding receivables is not required. 13.3 That ... interest on delayed receivables, the ld. Counsel for the assessee argued that the TPO and Id. DRP has not allowed the working capital adjustments and if the working capital adjustment is provided to the assessee then the interest on delayed receivables is no more required. The ld. Counsel

Kbs Creation Ltd, Mumbai vs. Dy Comm. of Income Tax -Circle 24(1), Mumbai

In the result, the concise ground of appeal of the assessee is allowed

ITA 6477/MUM/2024[2021-22]Status: DisposedITAT Mumbai16 Jun 2025AY 2021-22

Bench: SHRI PAWAN SINGH (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 10ASection 143(3)Section 254(1)Section 80ISection 92C

commercially unviable. Thelearned TPO and Hon'ble DRP erred in not making adjustment for qualitative aspects of the business as well as working capital adjustments, while determining ALP. 3) The Learned TPO and Hon'ble DRP erred in computing arm's length operating profit (OP) @ 2.13%/2.56% respectively