“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

Intas Pharmaceuticals Ltd., Ahmedabad vs. The DCIT, Circle-2(1)(1), Ahmedabad

Accordingly, this ground raised by the Revenue is dismissed

ITA 222/AHD/2021[2015-16]Status: DisposedITAT Ahmedabad21 May 2025AY 2015-16

Bench: S/Shri T.R. Senthil Kumar & Makarand V.Mahadeokarasstt.Year : 2015-16 Acit, Cir.2(1)(1) M/S.Intas Pharmaceuticals Ltd Vejalpur Vs Corporate House Ahmedabad. S.G. Highway Nr.Sola Bridge, Thaltej Ahmedabad 380 054. Pan : Aaaci 5120 L Asstt.Year : 2015-16 M/S.Intas Pharmaceuticals Ltd Acit, Cir.2(1)(1) Corporate House Vs Vejalpur S.G. Highway Ahmedabad. Nr.Sola Bridge, Thaltej Ahmedabad 380 054. Pan : Aaaci 5120 L (Applicant) (Responent) : Assessee By Shri S.N. Soparkar, Sr.Advocae & Shri Parin Shah, Ar : Shri Ragnesh Das, Cit-Dr Revenue By सुनवाई क" तारीख/Date Of Hearing : 28/04/2025 घोषणा क" तारीख /Date Of Pronouncement: 21/05/2025 आदेश आदेश/O R D E R आदेश आदेश

Section 115JSection 142(1)Section 143(2)Section 143(3)Section 144CSection 14ASection 35Section 36(1)(iii)Section 37Section 92C

facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that the appellant had undertaken working capital adjustment while benchmarking the transaction of sale of goods which takes into account the impact of outstanding trade receivables. c) That in the facts and circumstances ... working capital employed, which subsumes the impact of receivables. Therefore, no ITA No.281 and 222/Ahd/2021 12 separate adjustment for receivables is warranted when working capital adjustment is already factored. The assessee also stated that the assessee does not charge interest on delayed realization from either AEs or non-AEs, following

DCIT, Gurgaon vs. M/S. Motorola India Pvt. Ltd., Gurgaon

In the result, the appeal being ITA No

ITA 3646/DEL/2015[2006-07]Status: DisposedITAT Delhi16 May 2025AY 2006-07

Bench: Shri S.Rifaur Rahman & Shri Vimal Kumar

For Appellant: Shri G.C. Srivastava, AdvocateFor Respondent: Shri Dharam Veer Singh, CIT DR

Section 143(3)Section 37(1)Section 43B

Appeals) has erred on the facts and in law by confirming the decision of the Ld. TPO of not allowing working capital adjustment to the margin of the comparable to bring them in line with the working capital requirements of the appellant. 5.9 That the LO. CIT (Appeals) has erred ... wages/ TC filter; 5.7 retaining in comparable engaged in related party transactions during the year. 5.8 denying the appellant, the benefit of a working capital adjustment. 5.9 denying the appellant, the benefit of a risk adjustment and holding that the appellant is a risk bearing entity while ignoring the business

Motorola Solutions India Pvt. Ltd., Gurgaon vs. ACIT, Gurgaon

In the result, the appeal being ITA No

ITA 3641/DEL/2015[2006-07]Status: DisposedITAT Delhi16 May 2025AY 2006-07

Bench: Shri S.Rifaur Rahman & Shri Vimal Kumar

For Appellant: Shri G.C. Srivastava, AdvocateFor Respondent: Shri Dharam Veer Singh, CIT DR

Section 143(3)Section 37(1)Section 43B

M/S. Motorola Solutions India Private Limited, Gurgaon vs. ACIT, Gurgaon

In the result, the appeal being ITA No

ITA 4789/DEL/2014[2005-06]Status: DisposedITAT Delhi16 May 2025AY 2005-06

Bench: Shri S.Rifaur Rahman & Shri Vimal Kumar

For Appellant: Shri G.C. Srivastava, AdvocateFor Respondent: Shri Dharam Veer Singh, CIT DR

Section 143(3)Section 37(1)Section 43B

Jade Global Software Private Limited, Pune vs. Assessment Unit, National Faceless Assessment Centre, Pune

In the result, the Appeal of the Assessee is allowed for statistical purpose

ITA 1768/PUN/2024[2020-21]Status: DisposedITAT Pune13 May 2025AY 2020-21

Bench: Shri R.K.Panda & Shri Vinay Bhamore

For Appellant: • considering foreign exchange gain and other income as non-operating income

Section 143(3)Section 144B

comparable. 3. It is noted that the TPO has accepted the comparable Harbinger Systems Pvt. Ltd stating that after carrying out working Capital Adjustment, the said comparable becomes comparable to the assessee. Similarly, the TPO has carried out Working Capital Adjustment for Assessee's comparable Evoke Technologies Pvt. Ltd. However ... noted that the TPO has not provided working of the impugned Working Capital Adjustment. The TPO has not provided any reason for carrying out Working Capital Adjustment for only two comparables. However, it is not clear from the order of the TPO, whether such Working Capital Adjustment has been made

Ab Inbev Gcc Services India Private Limited, Bangalore, Karnataka vs. Assistant Commissioner of Income Tax, Circle-1(1)(1), Bangalore

In the result, appeal is allowed for statistical purposes

ITA 1635/BANG/2024[2020-21]Status: DisposedITAT Bangalore13 May 2025AY 2020-21

Bench: Shri. Laxmi Prasad Sahu & Shri. Keshav Dubeyit(It)A No.1635/Bang/2024 Assessment Year :2020-21

For Appellant: Shri. Chavali Narayan, CAFor Respondent: Ms. Neera Malhotra, CIT(DR)(ITAT), Bangalore

Section 143(3)Section 144BSection 153Section 92B

does not provide any interest clause in case of delay there cannot be any chargeability of interest. He alternatively argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. Without prejudice to the above contention ... international transaction as per explanation to section 92 B of the Act. Alternatively, it also argued by the Ld.AR that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables as loans and advances to associated enterprise would amount to double taxation

Nxp India P.Ltd(Successor of Nxp Semiconductors India P.Ltd), New Delhi vs. ACIT, Circle-18(2), New Delhi

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

ITA 8341/DEL/2018[2014-15]Status: DisposedITAT Delhi09 May 2025AY 2014-15

Bench: Shri Prakash Chand Yadav & Shri Brajesh Kumar Singh[Assessment Year: 2014-15]

Section 143(2)Section 143(3)Section 144C(13)Section 144C(5)

Without prejudice to our ground of objection 4.10 above, the learned DRP/AO/TPO have erred, in law and in facts, by not considering that working capital adjustment appropriately takes into account the delayed/ outstanding receivable and separate TP adjustment is unwarranted.” 5. Grounds of appeal no.1 to 3 are general

Nxp India P.Ltd(Formerly Known As Freescale Semiconductor India Pvt. Ltd), New Delhi vs. JCIT Range-3, New Delhi

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

ITA 5763/DEL/2017[2013-14]Status: DisposedITAT Delhi09 May 2025AY 2013-14

Bench: Shri Prakash Chand Yadav & Shri Brajesh Kumar Singh[Assessment Year: 2013-14]

Section 142(1)Section 143(1)Section 143(2)Section 234ASection 92Section 92C

Rejecting comparables solely on the ground that they follow different accounting year different from financial year. 10. Not correctly computing the working capital adjustment and the resultant margins. 11. Not making adjustment for difference in risk profile. 12. In charging and computing interest under section 234A, 234B and 234C

Dsm Shared Services India Private Limited, Hyderabad vs. ACIT, Circle-8(1), Hyderabad

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

ITA 501/HYD/2022[2018-19]Status: DisposedITAT Hyderabad05 May 2025AY 2018-19

Bench: Shri Vijay Pal Rao & Shri Madhusudan Sawdia

For Appellant: Shri Aliasgar Rampurawala, C.AFor Respondent: Shri B. Bala Krishna, CIT-DR

Section 143(3)Section 43B

filter uniformly to all the comparables and carryout the necessary verification. 8. Ground no.13.1 of the assessee is related to the denial of working capital adjustment (“WCA”) by the Ld. TPO while determining the ALP. The Ld. AR submitted that the Ld. TPO denied WCA on the ground that only ... laid down in multiple judicial precedents. Finally, the Ld. AR prayed before the Bench that, in order to bring parity in comparison, a working capital adjustment should be granted. 8.1 Per contra, the Ld. DR relied on the decision of Ld. AO/TPO and submitted that the assessee has not furnished

Gainsight Software Private Limited, Hyderabad vs. Deputy Commissioner of Income Tax, Circle 2(1), Hyderabad

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

ITA 200/HYD/2021[2016-17]Status: DisposedITAT Hyderabad05 May 2025AY 2016-17

Bench: Shri Vijay Pal Rao & Shri Madhusudan Sawdia

For Appellant: Shri Aliasgar Rampurawala, C.AFor Respondent: Shri B. Bala Krishna, CIT-DR

Section 143(3)Section 271ASection 37(1)Section 438

facts and in the circumstances of the case and in law, Ld. AO / Ld. TPO/ Ld. DRP erred in: a) not granting working capital adjustment and b) not granting r adjustment Thus, based on above grounds, the Appellant prays that transfer pricing adjustment ... assessee regarding exclusion of Infobeans from the list of comparables. 10. Ground no.8(a) of the assessee is related to the denial of working capital adjustment (“WCA”) by the Ld. TPO while determining the ALP. The Ld. AR submitted that the Ld. TPO denied WCA on the ground that only

Open Text Technologies India Private Limited, Hyderabad vs. Dy. Commissioner of Income Tax, Circle-16(2), Hyderabad

ITA 2387/HYD/2018[2014-15]Status: DisposedITAT Hyderabad05 May 2025AY 2014-15

Bench: Shri Vijay Pal Rao, Hon’Ble & Shri Madhusudan Sawdia, Hon'Ble

For Appellant: Revenue byFor Respondent: Date of hearing

Section 143(3)Section 92B

companies considered comparable. Which are 1. E-Infochips Ltd. 2. Larsen & Toubro Infotech Ltd. 3. Infosys Ltd. 4. Persistent Systems Ltd. 8. Working capital adjustments Not adjusting the net margins of comparable companies for functional and risk differences in accordance with the provisions of rule ... outstanding receivables as unsecured loans advanced to AEs. c) Not appreciating the fact that under TNMM, the impact of outstanding receivables on the working capital adjustments have already been taken into account in determining the arm's length margin hence there is no need of imputing interest on outstanding receivables

Wns Global Services Private Limited, Mumbai vs. Asessment Unit, National Faceless Assessment Centre, New Delhi

In the result, the appeal of the assessee bearing ITA No

ITA 4432/MUM/2024[AY 2020-2021]Status: DisposedITAT Mumbai05 May 2025

Bench: Shri Anikesh Banerjee & Shri Prabhash Shankarwns Global Services Private Vs Assessment Unit, National Faceless Limited, Mumbai Assessment Centre, New Delhi Pl-10/11, Gate No.4, Godrej- Boyce Complex, Pirojshanagar, L.B.S.Marg, Vikhroli (West), Mumbai-400 079 Pan: Aaacw2598L Appellant Respondent

For Appellant: ShriPorus Kaka A/w Manish KanthFor Respondent: Shri Pankaj Kumar (CIT DR)

Section 143(3)Section 144BSection 144CSection 144C(13)Section 144C(5)Section 253

No.3944/Del/2024, date of pronouncement 22/04/2025. The relevant paragraph 8 is reproduced as below:- “8. The ld AR before us prayed for grant of working capital adjustment to be applied on the comparable margin, which in either case, if granted, there would no need to separately impute interest on outstanding receivables ... Kusum Healthcare in ITA No. 765/2016 dated 25.04.2017. We find that the ld DRP had also directed the ld TPO / AO to grant working capital adjustment to the assessee which has not been followed by the ld TPO. Hence, the order passed by the TPO had to be considered

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

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

ITA 6571/DEL/2016[2012-13]Status: HeardITAT Delhi02 May 2025AY 2012-13

Bench: Shri Mahavir Singh & Shri Manish Agarwalatotech India Private Dy. Cit, Limited, Circle-1(1), 66 Km Stone, Nh-8, Delhi Vs. Gurgaon. Jaipur Highway, Gurgaon. (Appellant) (Respondent)

ignoring the fact that the effect, if any, of outstanding inter-company receivables has to be considered by making a working capital adjustment.” Additional Grounds of appeal 4.5 That on the facts and circumstances of the case and in law, DRA/TPO have erred in ignoring that the trade receivables ought