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2023 (7) TMI 170 - ITAT AHMEDABADTransfer Pricing adjustment - determination of Arm's Length Price ('ALP') - DRP not allowing the extra-ordinary costs incurred by the assessee due to shut down of the plant while computing the operating net costs (NCP) mark up earned by the assessee - primary argument of the counsel for the assessee is that when the plant was shut down due to change in management, even though the assessee did not have to bear variable expenses, it was under obligation to incur fixed cost to maintain these plants - HELD THAT:- Assessee had to bear power and electricity expenses to maintain the plants so that they would be in working conditions once the same would be operative. We observe that the Hon’ble DRP has been reasonable in its approach while allowing the capacity utilization adjustment to the assessee on account of one of the plant being non-operational and the assessee was operating at only 58% of its full capacity. DRP also allowed the assessee to make adjustment with respect to toll manufacturing charges on the ground that these charges were paid as extra-ordinary costs. Regarding excess power and electricity expenses, the TPO observed that the assessee in its calculation has not provided a bifurcation of power expenses into fixed and variable costs for the earlier year as well as year under consideration - DRP has not erred in facts and in law in not granting adjustment towards repairs and maintenance and excess power, electricity and store expenses. TPO not following the DRP direction for allowing tolling expenses while computing adjusted NCP mark up earned by the assessee - Hon’ble DRP has agreed with the contention of the assessee that toll manufacturing charges were paid as extra-ordinary cost and had given a categorical direction to the TPO to exclude this expenditure from operating cost for the purpose of benchmarking - despite the same, no relief has been granted to the assessee in the final assessment order. We direct that toll manufacturing charges be excluded from operating costs for the purpose of benchmarking, as per directions of Hon’ble DRP. TP adjustment to international transaction - whether the transfer pricing adjustment should be restricted to international transactions by the assessee with its associated enterprise or whether the adjustment is required to be computed at entity level? - HELD THAT:- In the case of Tara Jewels Exports (P.) Ltd.[2015 (12) TMI 1130 - BOMBAY HIGH COURT] held that adjustment to be done to arrive at arm's length price is only in respect of transaction with its associated enterprises. In the case of KHS Machinery (P.) Ltd. [2023 (4) TMI 1223 - ITAT AHMEDABAD] held that adjustment of PLI of comparables ought to be made at transaction level and not entity level. In the case of Kemrock Industries & Exports Ltd [2022 (12) TMI 156 - ITAT AHMEDABAD]held that transfer pricing adjustment should be restricted only in respect of turnover of assessee-company relating to international transactions, sale of resins to its associated enterprises, and same should not be done in relation to all transactions. Thus Transfer pricing addition should be restricted only qua international transaction and not entity level transactions. Disallowance of contribution to gratuity fund - DRP held that the payment made towards gratuity fund which was not an approved fund created by the assessee for the exclusive benefit of the employees was not allowable in terms of section 36(1)(v) - HELD THAT:- In decided in case of Gujarat State Co-op. Marketing Federation Ltd. [2021 (6) TMI 252 - ITAT AHMEDABAD] since undisputedly approval under section 2(5) was granted to gratuity fund subsequently by Commissioner, deduction was to be allowed. In the case of Jaipur Thar Gramin Bank [2016 (11) TMI 794 - RAJASTHAN HIGH COURT] held that where assessee had filed application to competent authority for approving gratuity scheme and it had duly complied with conditions laid down for approval under section 36(1 )(v), Assessing Officer ought not to have disallowed assessee's claim for deduction under section 36(l)(v) merely because Commissioner had not granted approval to Gratuity Scheme. Thus assessee is eligible for claiming deduction u/s. 36(1)(v).
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