Working Capital Adjustment Cannot Be Denied for Lack of Daily Data | ITAT

Case Details: Packt Publishing (P.) Ltd. vs. Deputy Commissioner of Income-tax [2026] 184 taxmann.com 717 (Mumbai-Trib.) 

Judiciary and Counsel Details

• Anikesh Banerjee, Judicial Member & Bijayanannda Pruseth, Accountant Member
• Nikhil Tiwari for the Appellant.
• Aditya Rai, SR. DR for the Respondent.

Facts of the Case

Assessee, a private limited company, provided publishing support services to its AE in the UK. Assessee sought a working capital adjustment under Rule 10B(1)(e)(iii) to neutralise differences in receivables and payables vis-à-vis comparables.

Assessee furnished computations for such adjustment. However, the TPO proceeded with the benchmarking without granting such an adjustment. DRP rejected the request for working capital adjustment because adjustments based on opening/closing balances may not capture intra-year movements, and the cost of capital differs across companies.

The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that it is an undisputed position that a working capital adjustment is a recognised comparability adjustment intended to neutralise differences in receivables, payables, and inventory between the tested party and the comparable companies that materially impact profitability. The objections raised by the DRP regarding intra-year movements and differences in the cost of capital pertain to the manner of computation and do not constitute valid grounds for outright rejection of the adjustment.

Selecting an appropriate interest rate and methodology may involve some estimation; however, such estimation is inherent in transfer pricing analysis and does not render the adjustment invalid.

Denial of working capital adjustment solely on the ground of the absence of daily working capital data was not justified. The OECD Transfer Pricing Guidelines also recognise that, in the absence of daily data, reasonable approximations, such as averages based on opening and closing balances, can be adopted, provided they reflect the working capital position during the year.

Accordingly, the denial of working capital adjustment solely on the ground of the absence of daily working-capital data was not justified.

List of Cases Referred to

• Sumit Diamond (India) (P.) Ltd. v. Addl. CIT [2013] 32 taxmann.com 394 (Mumbai – Trib.) (para 5)
• KGK Creations (P.) Ltd. v. Jurisdiction Assessing Officer [2025] 173 taxmann.com 57 (Mumbai – Trib.) (para 5).