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2016 (3) TMI 1121 - AT - Income TaxTransfer pricing adjustment - AO rejecting functional (capacity utilization) adjustment - Capacity adjustment should be allowed in whose hands? - Held that:- The authorities below have adjusted the operating costs of the assessee in allowing the capacity adjustment. As against that, the correct course of action provided under the law is to adjust the operating costs of the comparable and their resultant operating profit. There is hardly need to accentuate that there can be no estoppel against the law. Once the law enjoins for doing a particular thing in a particular manner alone, it is not open to anyone to adopt a contrary or different approach. As the authorities below have adopted a course of action in allowing adjustment, which is not in consonance with law, we cannot approve the same. The impugned order is set aside and the matter is restored to the file of the TPO/AO for giving effect to the amount of idle capacity adjustment in the operating profit of the comparables and not the assessee. How to compute capacity utilization adjustment under TNMM - Held that:- the capacity utilization adjustment has to be granted where there has been under utilization or lower utilization of the capacity. In the facts of the present case, we deem it appropriate to remit the issue back to the file of Assessing Officer to decide this issue afresh after considering the submissions of the assessee, documents on record and decisions of the Tribunal. Accordingly, ground no. 2 raised in the appeal is allowed for statistical purpose. Selection of comparable - Held that:- the comparables F I Sofex Limited and Fortune Informatics Limited although were having loss in the year of comparison but whether they were consistent loss making companies has not been ascertained by the TPO before rejecting the same. A company is said to be bad comparable if it is a consistent loss making entity. Accordingly, we are of the opinion that this issue needs a revisit to the Assessing Officer. The Assessing Officer after considering the submissions of the assessee and documents on record shall decide the issue afresh in the light of the decisions discussed above. Accordingly, this ground of appeal of the assessee is allowed for statistical purpose. Benefit of ± 5% in transfer pricing adjustment u/s. 92C(2) - Held that:- In view of the newly inserted sub-section (2A) to section 92C the assessee is not eligible to claim the benefit of ± 5% in the variation between the arithmetical mean of the assessee and the comparables and entities. Moreover, the ld. AR of the assessee has conceded that this issue is to be decided against the assessee in the light of amended provisions. - Decided against assessee
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