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Agilent Technologies International Pvt. Ltd., Plot No.11, Sector-8, IMT Manesar, Gurgaon. Vs. DCIT, Circle-1(1), Gurgaon.
July, 16th 2014
                 DELHI BENCHES : I : NEW DELHI


                        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,


  (Appellant)                            (Respondent)

Assessee By       :   Shri Rahul K. Mitra
Department By     :   Shri Peeyush Jain, CIT, DR &
                      Shri Yogesh K. Verma, CIT, DR



      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

                                                    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


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

                                                    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


                                                        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.


Copy forwarded to:

     1. Appellant

     2. Respondent

     3. CIT

     4. CIT (A)

     5. DR, ITAT

                                                 AR, ITAT, NEW DELHI.


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