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2019 (6) TMI 1486 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- Proportionate adjustment is to be made only on the value of international transactions and not for the entire transactions at entity level. The total value of international transactions of Rasai unit in respect of import of raw materials was only ₹ 65 crores. TPO considered the entire total operating expenditure (and not restricting only the import transaction of ₹ 65 crores) of the AE segment of Rasal unit while computing the adjustment. This is now well settled by the decision in the case of PCIT vs Sandvik Asia Pvt. Ltd [2018 (5) TMI 262 - BOMBAY HIGH COURT] states the adjustment should be restricted only to the international transactions not all the other third party transactions. Economic adjustments - Stock Write Down - This volatility in market conditions and steep increase in the cost of raw materials were duly accepted and allowed by the ld TPO for Non-AE segment but denied for AE segment. It is elementary that for the purpose of comparison, both the tested party and the comparable is to be evaluated under same conditions. We hold that the ld TPO having allowed the same in Non-AE segment to the tune of ₹ 363 lacs, ought not to have taken a divergent stand in respect of AE segment in the sum of ₹ 846 lacs. Accordingly, we direct the ld TPO to allow the same as an economic adjustment while computing the margins of the AE segment for the purpose of comparability. Capacity Underutilization (Rasai Plant) and Shutdown Cost (Rasai Plant) - It is not in dispute that the Rasai plant was closed down for a period of 4 months from November 2008 to February 2009 due to lack of demand and pile up of excess inventories. This fact is evident from the Excise Register placed on record. This is evident from the manufacturing details provided by the assessee for the financial yea₹ 2007-08 and 2008-09 enclosed in page 253 of the paper book. This resulted in underutilization of capacity in Rasai plant to 42% during the year and consequent shutdown cost. This is part of operational cost and hence allowance should be granted to the assessee as an economic adjustment. Professional charges for search of new MD - This is a non-recurring item and extra-ordinary in nature. It is not that a new MD is appointed in normal course of business every year. During the year, the assessee company had paid this fees to recruitment agency in search of MD and claimed the same as an extraordinary economic adjustment. Accordingly, we direct the ld TPO to consider the amount spent on professional charges for search of new MD to be allowed as an economic adjustment while computing the margins of AE segment for the purpose of comparability. Addition on account of capital expenditure on scientific research centre - only grievance of the revenue is that since the assessee had not obtained renewed its approval from DSIR, the assessee is not entitled for deduction - HELD THAT:- The benefit of s. 35 (1)(iv) can be availed by the assessee in respect of expenditure of a capital nature on scientific research if that research is related to the business carried on by the assessee. The approval of the authority prescribed under s. 35(2B) is not an essential prerequisite for claiming the allowance unde₹ 35(1)(iv) if it is found that a part of the claim falls within the ambit of s. 35(1)(iv). The mere fact of a claim not having been found admissible under s. 35(2B) will not constitute a bar to allowing an expenditure under s. 35(1)(iv) if that expenditure is capital expenditure and falls squarely within the ambit of s. 35(1)(iv). Capital expenditure incurred on the acquisition of land or construction of building which is excluded by the very terms of s. 35(2B) can be claimed under s. 35(1)(iv) - we hold that the assessee is entitled for deduction u/s 35(1)(iv) of the Act. Accordingly, the Ground No. 2 raised by the revenue is dismissed.
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