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Encora Innovation India Private Limited Vs. The Deputy Commissioner of Income Tax - (Income Tax Appellate Tribunal) (09 Aug 2021)

When assessee is a capital service provider, there is no necessity to provide negative working capital adjustment


Direct Taxation

Two issues raised in present case is namely-- (i) Assessee's prayer regarding inclusion of Crystal Voxx Limited in the final list of comparable companies with respect of ITES segment. (ii) Assessee's submission that, negative working capital adjustment should not be allowed.

On identical facts, the Bangalore Bench of the Tribunal in FNF India Private Limited v. ACIT had held that Crystal Voxx Limited should be included in the final list of comparable companies. The list of comparable companies selected by the TPO in this case and the assessment year are identical to the case of FNF India Private Limited. In view of the above order of the Co-ordinate Bench of Bangalore Tribunal in the case of FNF India Limited, AO/TPO are directed to include Crystal Voxx Limited as a comparable Company.

Admittedly in this case, the assessee is a capital service provider entirely funded by its AEs. In the following case laws, it has been held that when assessee is a capital service provider, there is no necessity to provide negative working capital adjustment.

In view of the judicial pronouncements, it is held that since the assessee is a capital service provider, negative working capital adjustment need not be given in the facts of this case. The appeal filed by the assessee is partly allowed.


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