The issue before the ITAT was whether claim of working capital adjustment can be rejected on the ground that the assessee is not engaged in manufacturers/traders.
For AY 2006-2007, a TP adjustment was proposed by the TPO in respect of Software development segment and IT enabled services (ITES) segment. The Assessee had claimed that working capital adjustment should be granted. The claim was rejected by the TPO at the very outset without examining its details on the ground that an working capital adjustment is possible only in the case of manufacturers/traders. The DRP affirmed the view taken by the AO and rejected assessee’s claim.
The ITAT held that the claim for working capital adjustment cannot be dismissed on the ground that such an adjustment is possible only in the case of manufacturers/traders. Relying on the decision of Mercer Consulting (India) (P.) Ltd. v. Dy. CIT ITA No.966/Del/2014  47 taxmann.com 84 Ed.], the ITAT held that claim needs to be examined on merits. The case was remanded back for grant of working capital adjustment on merits and thereafter, allowing the same, if available.