Case Law Details
ADP Private Ltd. Vs CIT (ITAT Hyderabad)
With regard to the working capital adjustment, it is the case of the assessee that the provision of bad and doubtful debts should be considered as operating expenses while computing the PLI. He submitted that the transactions can be considered as a comparable only after making adjustments to eliminate the differences that are likely to affect the cost and profit margin on controlled and uncontrolled transactions. In support of this contention, he placed reliance upon the I.T. Rules 1(10)B(i)(e) of the I.T. Rules. He further submitted that the assessee being a Capitive Service Provider, working capital adjustment should be allowed to the assessee as per OECD guidelines. We find that the TPO has not granted working capital adjustment for both SDS and ITeS transactions by holding that the assessee has failed to substantiate that WCA has an impact on the profit of the assessee vis-à-vis comparable companies. Even before us, the assessee has not shown how the working capital adjustment is required in the case of the assessee as comparable to the compared companies. Therefore, we do not see any reason to direct the AO/TPO to grant working capital adjustment to the assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This is assessee’s appeal for the A.Y 2014-15 against the final assessment order passed u/s 143(3) r.w.s. 92CA of the Act dated 30.10.2018.
2. Brief facts of the case are that the assessee company ADP (P) Ltd, is a captive service provider of its AE’s, i.e. it provides software development services (SDS in short) and I.T. Enabled Services (ITeS) to its group companies. It filed its return of income for the A.Y 2014-15 on 28.11.2014 declaring an income of Rs.144,21,34,890/- under the normal provisions and book profits of Rs.148,81,42,550/- u/s 115JB of the Act. During the assessment proceedings u/s 143(3) of the Act, the AO noticed that during the relevant financial year, the assessee has entered into international transactions with its Associated Enterprises (AEs). Therefore, the matter was referred to the TPO for determination of the Arms’ Length Price (ALP) of the international transactions. The TPO rejected the TP study of the assessee and conducted his own search for the comparables for both SDS and ITeS and proposed adjustments to the ALP. Further, he also proposed adjustment towards interest on receivables. Thus, the total of the adjustment proposed was Rs.122,56,40,217/- u/s 92CA of the Act. Accordingly, the draft assessment order was proposed by the AO. The assessee raised its objections to the said proposal before the DRP and the DRP vide directions dated 11.9.2018 gave certain directions to the TPO which resulted in enhancement of the adjustment u/s 92CA of the Act from Rs.122,56,40,217/- to Rs.128,64,17,966/-. In compliance thereof, the final assessment order has been passed, against which, the assessee is in appeal before us by raising the following grounds:
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