Schneider Electric IT Business India Private Ltd. Vs DCIT (ITAT Bangalore)
Working Capital Adjustment is Key: TPO Must Justify Denial of WCA- ITAT Says No Separate Interest Addition if WCA Allowed- Comparables Selected by TPO? Then Burden on Revenue
Assessee, a wholly owned subsidiary engaged in manufacture & distribution of power protection equipment, was subjected to TP adjustment on interest for overdue receivables from AEs amounting to Rs.16,61,21,349, computed by TPO as a separate international transaction of capital financing using 6-month LIBOR + 450 bps.
Assessee argued that once working capital adjustment is granted under TNMM, no separate addition for overdue receivables is warranted as per Delhi High Court ruling in Kusum Healthcare Pvt Ltd. TPO & DRP rejected working capital adjustment stating that Assessee did not prove impact of working capital on margins.
Tribunal observed that comparables were selected by TPO, therefore onus lies on Revenue to justify why working capital adjustment should be denied, especially when Rule 10B mandates that differences materially affecting margins must be adjusted. Tribunal noted absence of factual working by both sides & held that TPO/DRP merely made theoretical observations. Tribunal restored issue to AO/TPO to recompute ALP afresh, directing that if working capital adjustment is allowed, no separate adjustment for overdue receivable interest can survive. Appeal partly allowed.
