MMSH Clinical Research Pvt. Ltd. Vs DCIT (ITAT Bangalore)
Working Capital Adjustment is Mandatory – Functional Dissimilarity Costs Revenue – ITAT Excludes Several Comparables in TP Case
Bangalore ITAT dealt with transfer pricing adjustments running into ₹5.04 crore. Assessee company was engaged in rendering backend support services such as medical writing, quality checks & programming for overseas clients. For AY 2021-22, the return declaring income of ₹65.87 lakh was filed. AO referred the international transactions to TPO, who made an adjustment of ₹5.04 crore. DRP affirmed the order, leading to a final assessment on 29.10.2024. Aggrieved, Assessee approached Tribunal.
The main controversy revolved around denial of working capital adjustment, rejection of Assessee’s filters, introduction of fresh filters by TPO, wrongful inclusion of certain companies, exclusion of appropriate comparables & misclassification of operating & non-operating items. Assessee also challenged initiation of penalty u/s 270A as mechanical.
Tribunal observed that working capital adjustment is a mandatory requirement wherever the Assessee is able to provide reasonable data. Reliance was placed on coordinate bench rulings in Quest Global Engineering & Huawei Technologies India (P.) Ltd.. Tribunal held that both TPO & DRP erred in rejecting working capital adjustment on technical grounds & directed that such adjustment be allowed. On the turnover filter, Tribunal held that comparable companies should be of similar size, particularly since the Assessee was a captive service provider with a turnover of only ₹26.34 crore. Reliance was placed on Radisys India Ltd. where turnover-based comparability was upheld.
