Zyme Solutions P Ltd, Bangalore V. Income tax Officer, ward-7(1)(4), Bangalore

MA 36/BANG/2016

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4393 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 05-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing

Judgement Text

MP.36/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER MISC.PETITION NO.36/BANG/2016 (IN I.T(TP).A NOS.465 /BANG/2015 (ASSESSMENT YEAR : 2010-11) M/S. ZYME SOLUTIONS P. LTD, NO.38/1/23, VENKATAMMA COMPLEX, SOUTH END ROAD, BASAVANAGUDI, BANGALORE 560 004 ..A PPELLANT PAN : AAACZ2465R V. INCOME-TAX OFFICER, WARD 7(1)(4), BANGALORE ..RESPONDENT I.T(TP).A NO.466/BANG/2015 (ASSESSMENT YEAR : 2010-11) (BY THE REVENUE) ASSESSEE BY : SHRI. PADAMCHAND KHINCHA, CA REVENUE BY : SHRI. S. R. KURRPPUSAMY, JCIT HEARD ON : 03.06.2016 PRONOUNCED ON : 03 .06.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : VIDE THIS MISCELLANEOUS PETITION GRIEVANCE RAISED BY THE ASSESSEE IS THAT GROUND REGARDING WORKING CAPITAL ADJUSTMENT TO BE GIVEN ON FINAL COMPARABLES WAS NOT ADJUDICATED. MP.36/BANG/2016 PAGE - 2 02. LD. AR SUBMITTED THAT GROUND NO.7(I) WAS NOT FU LLY ADJUDICATED BY THE TRIBUNAL. ACCORDING TO HIM, ASSESSEE HAD TAKEN A PLEA THAT WORKING CAPITAL ADJUSTMENT SHOULD BE GRANTED AS PER ACTUAL FOR FINAL COMPARABLES AND SHOULD NOT BE RESTRICTED TO 0.23%. AS PER THE LD. AR, THIS TRIBUNAL HAD COMMITTED A MISTAKE WHEN IT DIRECTED THE AO TO GIVE A LIMITED WORKING CAPITAL ADJUSTMENT OF 0.23% BASED ON THE RECOMMENDA TION OF THE TPO. AS PER THE LD. AR, THE WORKING CAPITAL ADJUSTMENT WORK ED OUT BY THE TPO HIMSELF CAME TO2.60%, BUT HE HAD UNREASONABLY RESTR ICTED IT TO 0.23%. 03. PER CONTRA, LD. DR SUBMITTED THAT THERE WAS NO MISTAKE IN THE ORDER OF THE TRIBUNAL REQUIRING ANY RECTIFICATION. 04. WE HAVE HEARD THE RIVAL CONTENTIONS. GROUND TA KEN BY THE ASSESSEE WITH REGARD TO THE WORKING CAPITAL ADJUSTMENT IS RE PRODUCED HEREUNDER : 7(I) THE LOWER AUTHORITIES HAVE ERRED IN NOT GIVIN G WORKING CAPITAL ADJUSTMENT IN THE FINAL ASSESSMENT ORDER EV EN THOUGH IT WAS GIVEN IN ORDER PASSED U/S.92CA. EVEN OTHERWISE , WORKING CAPITAL ADJUSTMENT IS INCORRECTLY COMPUTED. 05. OBSERVATION OF THE TRIBUNAL IN RELATION TO THE ABOVE GROUND APPEARING IN THE ORDER IS REPRODUCED HEREUNDER : MP.36/BANG/2016 PAGE - 3 41. LD. AR SUPPORTING ITS GROUND 7(I) SUBMITTED THA T WORKING CAPITAL ADJUSTMENT THOUGH DIRECTED BY THE TPO TO BE GIVEN IN THE ORDER PASSED U/S.92CA OF THE ACT, WAS NOT GIVEN BY THE AO, WHEN HE PASSED THE ASSESSMENT ORDER. VIS-A-VIS WORKING CAP ITAL ADJUSTMENT THAT WAS REQUIRED TO BE MADE, OBSERVATIONS OF THE T PO WERE AS UNDER : THE BALANCE PAYABLES NOT CONSIDERED IN CALCULATION OF NET WORKING CAPITAL OF THE TESTED PARTY IS DUE TO T HE FACT THAT THE Y ARE INVESTED EITHER IN FIXED ASSETS OR IN THE CURR ENT ASSETS HAVING NO COST, WHEREIN TRANSFER PRICING THO SE RECEIVABLES ARE TAKEN INTO CONSIDERATION THAT REDUC E THE WORKING CAPITAL REQUIREMENT AND ACCORDINGLY THE COS T OF WORKING CAPITAL THAT MUST BE RECOVERED FROM THE CUS TOMERS BY FACTORING IN THE SALES PRICE. ANY EXCESSIVE ADVA NCE WHICH IS RECEIVED FROM THE HOLDING COMPANY BY THE WOS CAN NOT BE FACTORED IN REDUCING THE SALES PRICE AND LESS SALES PRICE CANNOT BE DEFENDED ON THE GROUND THAT DUE TO NEGATI VE COST OF CAPITAL IT IS MANAGING TO HAVE ARM'S LENGTH PROFIT MARGIN EVEN IF IT IS HAVING LOW PROFIT MARGIN OIL ACTIVITY AS D ISCUSSED IN THE EXAMPLE GIVEN ABOVE. IN A RELATED PARTY SCEN ARIO, THE ENTIRE PAYABLES/ADVANCES CANNOT BE CONSIDERED I N WORKING CAPITAL ADJUSTMENT AS IN ANY BUSINESS THERE IS AN OPTIMUM WORKING CAPITAL THAT CAN BE FOUND OUT ONLY ON THE B ASIS OF COMPARISON WITH THIRD PARTIES AS THIRD PARTIES ALON E REPRESENT THE OPTIMUM WORKING CAPITAL REQUIREMENT. ACCORDINGLY THE WORKING CAPITAL ADJUSTMENT IS RESTR ICTED TO 0.23%. 42. IT IS CLEAR THAT TPO HAD ACCEPTED A WORKING CAP ITAL ADJUSTMENT OF .23%. NEVERTHELESS THE AO WHEN HE PAS SED THE FINAL ASSESSMENT ORDER PURSUANT TO THE DIRECTIONS OF THE DRP CALCULATED THE ALP OF ITES AS UNDER : MP.36/BANG/2016 PAGE - 4 43. IT IS CLEAR THAT AO HAD OMITTED TO GIVE THE WOR KING CAPITAL ADJUSTMENT. WE THEREFORE DIRECT THE AO TO GIVE WOR KING CAPITAL ADJUSTMENT OF 0.23% AS RECOMMENDED BY THE TPO. ACC ORDINGLY GROUND 7(I) OF THE ASSESSEE STANDS ALLOWED. 06. IT IS CLEAR FROM THE ABOVE THAT TRIBUNAL HAD AL LOWED THE GROUND OF THE ASSESSEE, THOUGH SECOND PART OF THE GROUND WAS NOT SPECIFICALLY DEALT WITH. NOT DEALING WITH THE SECOND PART OF THE GROUND REGA RDING INCORRECT COMPUTATION OF WORKING CAPITAL IS A MISTAKE APPAREN T ON RECORD. THERE CAN BE NO DISPUTE THAT WORKING CAPITAL ADJUSTMENT HAS T O BE CALCULATED FROM THE FINAL LIST OF COMPARABLES AND CANNOT BE RESTRICTED. WE THEREFORE MODIFY PARA 43 OF THE ORDER AND DIRECT THE AO / TPO TO GIV E WORKING CAPITAL ADJUSTMENT BASED ON ACTUAL FIGURES COMPUTED FROM TH E FINAL LIST OF COMPARABLES. MP.36/BANG/2016 PAGE - 5 07. IN THE RESULT, THE MP FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD OF JUNE, 2016. SD/- SD/- (VIJAYPAL RAO) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER