Computing the working capital adjustment and in limiting the working capital adjustment while determining the arm�s length price

Last updated: 10 September 2021

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This Income Tax Appellate Tribunal case concerns transfer pricing adjustments for a software development services company. The assessee sought to exclude a comparable company due to functional dissimilarity and argued that the law regarding working capital adjustments was evolving. The tribunal partly allowed the appeal.

Court :
ITAT Bangalore

Brief :
This appeal at the instance of the assessee is directed against CIT(A)�s order dated 11.11.2019. The relevant assessment year is 2010-2011.

Citation :
IT(TP)A No.149/Bang/2020 : Asst.Year 2010-2011

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES “B”, BANGALORE
Before Shri George George K, JM & Shri B.R.Baskaran, AM
IT(TP)A No.149/Bang/2020 : Asst.Year 2010-2011

M/s.EF Information Systems
Private Limited, #9, 3rd Floor
Salarpuria Cambridge Mall
Cambridge Layout, Ulsoor
Bangalore – 560 008.
PAN : AACCE0126G.

The Dy.Commissioner of
Income-tax, Circle 11(3)
Bangalore.

Appellant by : Sri.Sumeet Khurana, CA
Respondent by : Sri.Muzaffar Hussain, CIT-DR
Date of Hearing : 26.08.2021
Date of Pronouncement : 01.09.2021

O R D E R

All the grounds raised relate to transfer pricing adjustment. The assessee has raised four grounds and various sub-grounds. The learned during the course of hearing had only pressed ground No.2.8, 2.10 and additional ground (The additional ground was raised vide petition dated 04.03.2021.)

2.It was submitted by the learned AR that the assessee could not raise this ground before the lower authorities for the reason that the law on the issue was evolving and the same was not settled earlier. It was stated that the issue raised in the additional ground is decided in favour of the assessee by the recent judicial pronouncements. Therefore, it was requested that the additional ground may be admitted in the interest of justice and equity.

3. The assessee is a company. It is a subsidiary of Signum International, Luxemburg. The assessee-company provides software development services (SWD) and I.T. enabled services (ITES) to its AEs. The financial results of the assessee company for the year ending 31.03.2010.

4. The assessee is seeking to exclude ICRA Technology Analytics Limited from the comparable list on account of functional dissimilarity. According to the assessee, ICRA Technology Analytics Limited is into diverse of IT solutions. It provides IT solutions like business analytics, IT Engineering, business process outsourcing, web development, analytics and hosting, etc. The learned AR had relied on the order of Bangalore Bench of the Tribunal in the case of Cisco Systems (India) (P.) Ltd. v. ACIT (IT(TP)A Nos.505 and 508/Bang/2015 – order dated 15th April, 2021) reported in (2021) 127 Taxmann.com 62.

5. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 01st day of September, 2021.

Please find attached the enclosed file for the full judgement

FAQ :

The main issue concerns transfer pricing adjustments, specifically the computation and limitation of working capital adjustments when determining the arm's length price.

The assessee is M/s. EF Information Systems Private Limited, a subsidiary providing software development and IT-enabled services to its associated enterprises.

The assessee sought to exclude ICRA Technology Analytics Limited from the comparable list due to alleged functional dissimilarity, stating it offered diverse IT solutions.

The assessee argued that the additional ground could not be raised before lower authorities as the law was evolving and unsettled, and recent judicial pronouncements favoured their position.

The appeal filed by the assessee was partly allowed.