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2014 (8) TMI 868 - AT - Income TaxTransfer pricing adjustment – Adjustment of capacity utilization - Held that:- Although the factors might have contributed to the loss of the assessee company, it could not be arrived at with any degree of certainty that the transfer price of the international transaction have contributed towards the loss of the assessee company in the absence of any details furnished by the assessee company regarding the price at which the final product was sold by the AE - The claim of the assessee qua the benefit of ±5% adjustment as per second proviso to section 92C(2) of the Act was allowed by the CIT(A) - Following the order in Amdocs Business Services (P) Ltd V/s DCIT [2012 (12) TMI 482 - ITAT PUNE] - the statutory provisions as they stand on the first day of April of the assessment year must apply to the assessment of the year and the modification of the provisions during the pendency of assessment would not generally prejudice the rights of the assessee. Therefore, we find no justification in the action of the lower authorities in disentitling the assessee the benefit of +/-5% while computing ALP in terms of erstwhile proviso to sec 92C(2) - It has already been decided in earlier cases that assessee while allowing the benefit of ±5% to the assessee as per the erstwhile proviso to 92C of the Act – the order of the CIT(A) allowing the benefit of ±5% adjustment to the assessee while computing the TP adjustment is upheld – Decided against Revenue. Claim of adjustment on capacity utilization – Held that:- Following the order in Dy. Commissioner of Income Tax – Rg. 8(2) Versus M/s Petro Araldite P. Ltd. [2013 (8) TMI 403 - ITAT MUMBAI] - The issue of difference in capacity utilisation generally comes in the case of manufacturing concern and like any other business undertaking, the manufacturing concern has mainly two types of overheads i.e. fixed overheads and variable overheads - The variable overheads vary in proportion to the sales and they therefore do not have any effect on the profit margin as a result of difference in capacity utilization - The fixed overheads, on the other hand, do not vary with the volume of sales and since they remain by and large static irrespective of level of capacity utilization, the profit margin gets affected as a result of difference in capacity utilization on this count - the difference in capacity utilization materially affects the profit margin and if there is a difference in the level of capacity utilization of the assessee and the level of capacity utilization of the comparable companies, adjustment is required to be made to the profit margin of the comparables on account of difference in capacity utilization as per clause (e)(iii) of sub-rule (1) of Rule 10-B of the Income Tax Rules, 1962 – the matter is to be remitted back to the AO relating the issue to adjustment on account of capacity utilization in the case of assessee – Decided in favour of assessee.
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