IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : I : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
ITA No.1837/Del/2014
Assessment Year : 2006-07
Agilent Technologies Vs. DCIT,
International Pvt. Ltd., Circle-1(1),
Plot No.11, Sector-8, Gurgaon.
IMT Manesar,
Gurgaon.
PAN : AADCA4115C
(Appellant) (Respondent)
Assessee By : Shri Rahul K. Mitra
Department By : Shri Peeyush Jain, CIT, DR &
Shri Yogesh K. Verma, CIT, DR
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order
passed by the AO on 27.02.2014 u/s 143(3) read with Section
144C and Section 254 of the Income-tax Act, 1961 (hereinafter
also called `the Act') in relation to the assessment year 2006-07.
ITA No.1837/Del/2014
2. Shorn of unnecessary details, it is noticed that the instant
proceedings are second round pursuant to the order passed by
the Tribunal on 17.11.2011 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, TP 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%. Since the difference
between the assessee's profit rate and that of comparables was
more than 5%, standing at 5.68%, the TPO proposed TP
adjustment of ` 5,70,25,104/-. That is how the AO passed the
impugned order. The ld. AR has brought to our notice that
because of certain mistakes in the profit rates of the
comparables, the assessee filed rectification application u/s 154
and the TPO reduced arithmetical mean of the profit rate of
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ITA No.1837/Del/2014
comparables to 18.71% as against the original 19.22%. A copy of
the order passed by the TPO on 23.06.2014 has been placed on
record.
3. The limited claim of the ld. AR 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 page 7 onwards of the
TPO's order. The decision of the TPO is recorded on page 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 at 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
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ITA No.1837/Del/2014
of the Tribunal in Mercer Consulting (India) Pvt. Ltd. vs. DCIT in
ITA No.966/Del/2014 vide its order dated 6th June, 2014 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 ld. AR pointed out
that the TPO himself has allowed working capital adjustment for
the immediately two succeeding assessment years.
4. 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 afresh on merits and thereafter allowing the same, if
it is available. The ld. AR did not agitate any other point before
us.
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ITA No.1837/Del/2014
5 In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 15.07.2014.
Sd/- Sd/-
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 15th July, 2014.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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