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2011 (9) TMI 562 - AT - Income TaxTransfer Pricing - Arm Length Price - Diamonds Imported on free of cost of basis - ad hoc adjustment - AO contended Rate of processing the diamonds remained same whereas the cost of processing has increased substantially - Assessee replied loss on a/c of foreign exchange fluctuations, Depreciation - Held That:- . The action of the TPO in making substantial adjustment on the basis of labour cost to revenue ratio of the previous year without providing any independent comparable case where revenue increase was based on such ratio, in our opinion, is not proper and unjustified. Merely, because the personnel cost has gone up, the same in our opinion, cannot be the basis for assuming that the processing income also should go up. Decided against revenue. Adjustment on the basis of labour charges - the main reason for adjustment of the ALP is that although there is no significant change in the capacity utilization during the impugned assessment year as compared to A.Y. 2004-05, the percentage of labour charges to processing income has gone up from 39.16% to 55.41%. According to the TPO, the assessee has not been able to substantiate that the labour is of a fixed nature only. Further, according to the TPO, the AE should have compensated the assessee for excess labour due to its inability to give substantial work to it. - held that:- When regular employees are working with an assessee, he cannot terminate their services because of lesser capacity utilization during the year. The utilization of capacity during the year depends on various factors, the main factor being receiving orders from overseas and other clients. Further, the orders also should be acceptable to the assessee considering the profitability. - the adjustment of Rs. 3,25,92,361/- is uncalled for and accordingly directed to be deleted. - Decided in favor of assessee.
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