Case Law Details
ITO Vs M/s H&S Software Development & Knowledge Management Centre Pvt. Ltd. (ITAT Delhi)
In the present case, it appears that the assessee furnished the calculation for adjustment on account of working capital before the ld. DRP who after considering the submissions of the assessee and the guidelines provided by OECD for the computation of working capital adjustment directed the TPO to do needful. As regards to the objection of the TPO that the assessee had not demonstrated that there was a difference in the levels of working capital employed by it vis-à-vis the comparables which affected price and consequently profit, the ld. DRP categorically stated that holding of inventories, trade debtor/ creditors, trade receivable/payable has always an interest cost. Therefore there is definitely a connection in the level of working capital and the price at which one is willing to offer its services/goods. The ld. DRP held that the rejection of the assessee’s claim of working capital adjustment by the TPO was not tenable.
As regards to the observation of the TPO that monthly data of comparables as well as segmental data was not available for making reasonably accurate working adjustment. The ld. DRP directed the TPO that average of opening and closing balance of the inventories and the trade receivable/payable, trade debtors/creditors for the relevant year may be adopted which may broadly give the representative level of working capital over the year. In our opinion, the ld. DRP rightly directed the TPO to compute the working capital adjustment by using the OECD methodology. We do not see any valid ground to interfere with the findings given by the ld. DRP. Accordingly, we do not see any merit in this appeal of the department.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This is an appeal by the department against the order dated 27.11.2014 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).
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