AGILENT TECHNOLOGIES INTERNATIONAL (P) LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-7-17
INCOME TAX APPELLATE TRIBUNAL
Decided on July 15,2014

Agilent Technologies International (P) Ltd. Appellant
VERSUS
DEPUTY COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

R.S.Syal, Member (A) - (1.) THIS appeal by the assessee is directed against the order passed by the AO on 27th Feb., 2014 under s. 143(3) r/w s. 144C and s. 254 of the IT Act, 1961 (hereinafter also called 'the Act') in relation to the asst. yr. 2006 -07. Shorn of unnecessary details, it is noticed that the instant proceedings are second round pursuant to the order passed by the Tribunal on 17th Nov., 2011 remitting the matter to AO/TPO for deciding the question of transfer pricing adjustment afresh after allowing a reasonable opportunity of being heard to the assessee. In the original order passed by the AO, transfer pricing adjustments were made in respect of Software development segment and IT enabled services (ITES) segment. In the present round, the dispute is only in relation to ITES segment. The assessee applied Transactional Net Margin Method (TNMM) as the most appropriate method with the profit level indicator (PLI) of OP to OC. In the final analysis, the TPO chose four comparable cases and worked out the arithmetic mean of their profits at 19.22 per cent. Since the difference between the assessee's profit rate and that of comparables was more than 5 per cent standing at 5.68 per cent the TPO proposed transfer pricing adjustment of Rs. 5,70,25,104. That is how the AO passed the impugned order. The learned Authorised Representative has brought to our notice that because of certain mistakes in the profit rates of the comparables, the assessee filed rectification application under s. 154 and the TPO reduced arithmetical mean of the profit rate of comparables to 18.71 per cent as against the original 19.22 per cent. A copy of the order passed by the TPO on 23rd June, 2014 has been placed on record.
(2.) THE limited claim of the learned Authorised Representative before us was that the authorities below failed to grant working capital adjustment which was legally due to it. It can be seen from the TPO's order that the assessee made a claim for the grant of working capital adjustment which has been dealt with on p. 7 onwards of the TPO's order. The decision of the TPO is recorded on p. 9 rejecting the assessee's claim at the very outset without examining its details. The DRP affirmed the view taken by the AO in the order passed pursuant to the TPO's order rejecting the assessee's claim. The relevant discussion is made in para 8.6 of DRP's direction. It is noticed that the authorities below failed to consider the assessee's claim of allowing working capital adjustment on merits and simply rejected the same at threshold by canvassing a view that the same is allowable only in manufacturing sector or trading sector etc. We are unable to accept the view taken by the authorities below. The Delhi Bench of the Tribunal in Mercer Consulting (India) (P) Ltd. vs. Dy. CIT in ITA No. 966/Del/2014 vide its order dt. 6th June, : 2014 [reported at (2014) 165 TTJ (Del) 28 : (2014) 108 DTR (Del)(Trib) 348 - -Ed.] has held that the claim for working capital adjustment cannot be dismissed without examining the same on merits. In that case also, the authorities did not admit the assessee's claim of working capital adjustment on merits by holding that such an adjustment is possible only in the case of manufacturers/traders. In that case, the Tribunal after setting aside the order of the AO/TPO remitted the matter to the file of AO/TPO for examining the assessee's claim for grant of working capital adjustment on merits and thereafter, allowing the same, if available. The learned Authorised Representative pointed out that the TPO himself has allowed working capital adjustment for the immediately two succeeding assessment years. Without going into the actual calculations, we set aside the impugned order to this extent and remit the matter to the file of AO/TPO for considering the assessee's claim of working capital assessment (sic - -adjustment) afresh on merits and thereafter allowing the same, if it is available. The learned Authorised Representative did not agitate any other point before us. In the result, the appeal is allowed for statistical purposes.;


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