The Income Tax Appellate Tribunal (ITAT), Bengaluru Bench allowed working capital adjustment claim, thereby granting relief to M/s. Hewlett-Packard (India) Software Operation Pvt. Ltd.
The assessee,M/s. Hewlett-Packard (India) Software Operation Pvt. Ltd is a private limited company and is the wholly owned subsidiary of Compaq Computer Holdings Ltd., Mauritius and is ultimately held by Hewlett Packard Company, USA. The assessee is engaged in the business of providing software development support services in the field of ecommerce, e-solutions, e-services, internet security and management etc. to its AEs
During the year under consideration the assessee filed return of income declaring total income of Rs.197,11,40,320 under normal provisions of the Act and book profits u/s.115JB of the Act at Rs.213,86,35,291. The case was selected for limited scrutiny under CASS and notice under Section 143(2) of the Act was duly served on the assessee.
Since the assessee had international transactions, the case was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of the international transactions the assessee has entered into with its Associate Enterprises (AE). The TPO while computing the TP adjustment did not consider the working capital adjustment.
The Counsel for the assessee, Padam Chand Khincha, in this regard submitted that it is an accepted principle held in various decisions of this tribunal that working capital adjustment should be allowed on actuals. The Counsel also submitted that all the relevant details submitted with regard to working capital has not been considered by the AO/DRP.
The Counsel for the assessee placed reliance in this regard on the decision of the coordinate bench of the Tribunal in the case of Huawei Technologies India Pvt Ltd. vs. JCIT (2019) wherein it has been held that working capital adjustment is to be granted in actual.
A Division Bench consisting of N.V. Vasudevan, Vice President and Padmavathy S, Accountant Member held that “Respectfully following the decision of the coordinate bench of the Tribunal we hold that the working capital adjustment as claimed by the assessee should be allowed.”
“The TPO is directed to recomputed the ALP” the Tribunal said.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to TaxscanPremium. Follow us on Telegram for quick updates.
