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2016 (3) TMI 1305 - ITAT HYDERABADTPA - Non consideration of the Cost Accountants allocation of costs between AE and NON AE segments - TPO did not accept the same observing that the same was not audited - Held that:- The cost allocation between AE and Non AE segments by the Cost Accountant has been audited and the same has also been reported by the statutory auditor. The segmental details furnished by the assessee are reproduced at para 4.10 of the DRP’s order. A perusal of the same shows that a sum of ₹ 1069.80 lakhs has been shown as unallocated costs. According to the assessee, this pertains to the unutilized capacity. The assessee has specifically stated so before the DRP. But DRP proceeded to allocate the unallocated expenditure between the AE and Non AE without specifically dealing with the contention of the assessee. Correct allocation of expenditure amongst various segments of the assessee’s transactions has to be done to arrive at the correct PLI. In the case before us, the revenue is seeking to interfere with the cost accountants report as the adjustment towards under utilization of the capacity has not been allowed both by the TPO as well as the DRP. Therefore, this issue would depend on the decision taken on whether the adjustment for under utilization of the capacity is allowable or not. Denial of Capacity Utilization adjustment and depreciation adjustment respectively - TPO and the DRP have disallowed these adjustments on the ground that the assessee was a contract manufacturer and therefore the prices at which the goods were supplied to AE cannot go below the agreed price as stipulated in the agreement with its AE - Held that:- the adjustments of under utilization of the capacity and the difference in the depreciation are the factors which are likely to materially affect the price or cost charged or paid, or the profit arising from, such transactions in the open market. Therefore, we direct the AO/TPO to allow the adjustments on account of under-utilisation of capacity and also difference in depreciation method adopted by the assessee and the comparable companies. Since we have held that the adjustment for the under utilization of capacity is allowed, the issue of apportionment of unallocated expenses also needs to be allowed. How much of the un allocated costs do really pertain to under utilization and nature of such costs unallocated were not examined either by the TPO or the DRP and neither are the details filed before us. Consequently, TPO has to examine and consider to what extent the claim can be allowed. The AO/TPO are accordingly directed to re-compute the ALP after allowing the above adjustments after due verification. Disallowance of loss on account of the directions passed by the DRP - Held that:- we find that Article 265 of the Constitution of India allows the Revenue to levy taxes but only in accordance with law. If during the course of assessment proceedings, it is found that the assessee is eligible for deduction in excess of the sum claimed by it in the return of income, it does not amount to a fresh claim. In our opinion, the Assessing Officer has erred in holding it to be a fresh claim. Therefore we direct the AO to verify and allow the claim of the assessee in accordance with law. Ground No.3 is accordingly set aside to the file of the Assessing Officer and treated as allowed for statistical purposes. Short deduction of TDS - Held that:- We remand this issue also to the file of the Assessing Officer with a direction to verify the claim of the assessee on this aspect and allow the same in accordance with law.
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