The assessee, a captive software development service provider, challenged the inclusion of WTS and IL as comparables. The Tribunal held that WTS had related party transactions by virtue of section 92B(2), thereby ceasing to be an uncontrolled comparable. IL was a full-fledged entrepreneur owning valuable intangibles, carrying out substantial research and development activities, possessing significant brand value and assuming all business risks, whereas the assessee was a low-risk captive service provider without any intangibles. Following its orders in the assessee’s own case for earlier years, the Tribunal directed exclusion of both companies from the final list of comparables. The Transfer Pricing Officer denied working capital adjustment despite differences in working capital levels between the assessee and the comparable companies. The Tribunal held that working capital adjustment materially affects profitability and had consistently been allowed to the assessee in its own cases for earlier and subsequent assessment years. As the lower authorities had not assigned any specific reasons for denying the adjustment, the Tribunal directed the Assessing Officer/Transfer Pricing Officer to grant the benefit of working capital adjustment. The Tribunal held that determination of the arm’s length price must strictly be made by adopting one of the methods prescribed under the Act. Since the Transfer Pricing Officer failed to apply any of the statutory methods while determining the arm’s length price, the determination was unsustainable. The Tribunal further held that such failure could not subsequently be cured by undertaking a fresh exercise, as the prescribed methods are mandatory and not merely directory. The issue was accordingly decided in favour of the assessee. (AY. 2011-12)