Tribunal was of the view that higher amount of advances to suppliers indicated that an assessee (buyer) made more advance payments and made cheap purchases. Also, higher amount of advances from customers deciphers that an assessee-seller made cheap sales. Therefore, there was no qualitative difference between the higher amount of advances from customers and lower amount of trade receivables insofar as its impact on the profit margin was concerned. Thus, advances to suppliers and advances from customers are integral part of working capital adjustment in the same way in which there are trade receivables and trade creditors. As a result, the Hon’ble Tribunal held that such advances could not be excluded in computing working capital adjustment.

In addition to this, it was held that as the figures of Advances to suppliers and Advances from customers were placed first time before the Ld. CIT(A) and therefore, were not verified by any Authority, deserved to be remanded back for adjudication.

Further, the Hon’ble Tribunal observed that the overall PLI at-41.54% not only depicts the effect on company’s manufacturing activity but also the activity of rendering services. However, the transaction was benchmarked separately by the assessee and the TPO did not dispute that it was at ALP. Thus, the only segment of the assessee under consideration was that of Manufacturing de hors Services. Since the Revenue from sale of services of Fives Cail KCP Ltd. constitutes a substantial portion i.e. 83%, could not  be considered as comparable to the international transaction under consideration of 100% Manufacturing activity. (AY. 2013-14)