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2015 (2) TMI 535 - AT - Income TaxRe-computation of the ALP - assessee seeked suitable reduction in the operating costs by the disallowed amount of depreciation and the resultant increase in its operating profit margin - reassessment was initiated on the ground that the assessee claimed excess depreciation against the ‘Business income’ - Held that:- A conjoint reading of the existing and the earlier provisions of sub-section (4) makes it overt that whereas the TPO’s report determining the ALP was earlier not binding on the AO, who could change the computation of ALP as per his wisdom, but now with the substitution of sub-section (4), the AO has become functus officio as regards the ALP determined by the TPO. Now, the AO is obliged to compute the total income of the assessee in conformity with and not having regard to the ALP determined by the TPO. Now, the AO cannot tinker with such determination done by the TPO. As the instant assessment order has been passed by the AO u/s 143(3) read with section 147 on 28.12.2011, the case falls for consideration under the substituted provision presently existing on the statute, forbidding the AO fromaltering the TPO’s determination of ALP in any manner. As such, we hold that the AO was incompetent to accept the assessee’s claim for reducing the operating costs with the amount of depreciation for the purpose of calculating the ALP of its international transaction, in making the extant assessment u/s 147. The final conclusion drawn by the authorities below in this regard is, therefore, upheld. However, we make it clear that it is open to the assessee to seek any legal remedy, if available, as per law for getting the needful done in this regard. - Decided against assessee. Addition on account of transfer pricing adjustment - exclusion of transactions with branch office seeked by assessee - Held that:- Merely because the assessee took an inadvertent appreciation of the transactions with self as international transactions, that cannot prevent it from claiming before the authorities that the correct legal position should prevail. In view of the fact that the assessee’s office in Canada is its branch office, the transactions between the head office and the branch office, under the provisions of the Act, cannot be considered as international transactions. We, therefore, hold that the TPO was not justified in determining the ALP of the international transaction of ‘Software Product Development/Software Consultancy Services’ by applying the average operating profit margin of the comparables to the cost base of transactions with its AE and also with the branch office in Canada. Such cost base is directed to be considered as exclusive of transactions with the Canada branch. We, therefore, set aside the impugned order on this issue and direct the AO/TPO to recompute the ALP in the light of our above directions. - Decided in favour of assessee. Disallowance of adjustment on account of idle capacity - PO used the TNMM as the most appropriate method for calculating the ALP - Held that:- The assessee’s contention that its operating costs should be reduced to the extent its employees remained idle is, ergo, incapable of acceptance. The adjustment, if any, could have been allowed, if the assessee had demonstrated that the comparable companies had more under-utilization of their labour force vis-à-vis the assessee. The onus to prove such under-utilization of employees of the comparables, for claiming adjustment, squarely lies on the assessee. On a specific query, the ld. AR could not point out that the utilization of employees by the comparable companies was less than the assessee. Under such circumstances, we are of the considered opinion that no such adjustment can be granted. We, therefore, approve the view taken by the authorities on this issue. - Decided against assessee.
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