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2017 (4) TMI 1402 - ITAT BENGALURUComputing the operating margin of the company - Not adjusting for extraordinary expenses/of nonrecurring expenses made by the assessee-company to operating cost like high manufacturing cost, high personnel cost, execution of low margin deals and high import content cost - Under-utilisation of the capacity - TPA - ALP determination - Held that:- Law is quite settled to the extent that is quite settled to the extent that Once there is unutilized capacity or men power, such under-utilization impacts margin and therefore, the adjustment should be made while computing the ALP. But the onus lies on the assessee to establish there is under-utilization of the capacity and under-utilization is more than average under-utilization in the industry. If the under-utilization is more than average under-utilization of the industry then necessary adjustment is required to be made to the margin of computing ALP. But in the present case, the assessee-company failed to demonstrate under-utilisation of the capacity in assessee’s own case and also not falling below average rate of under-utilization in the industry. In the circumstances, we remand the matter back to the file of the AO/TPO to adjudicate this issue in accordance with law after due opportunity to the assessee company. Direction of the DRP directing income from administrative services as part of operating revenue - Held that:- To examine the correctness of the findings of the TPO, we examined the Annual Report and it is noticed by us from Schedule 13 to the P&L Account that the above amount has been shown as 'Administrative expenses recovered' which clearly indicates that the administrative expenses recovered are nothing but the reimbursement of the expenses incurred by the assessee for the above company and therefore, if such income is excluded from the operating revenue, corresponding expenses have to be excluded from the operating cost. We are in agreement with the submission of the assessee that the administrative expenses recovered to be considered as operating revenue, considering the fact that the TPO has not reduced corresponding expenses from the operating cost. The Assessing Officer is directed accordingly.
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