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2017 (9) TMI 1881 - AT - Income TaxTP Adjustment - selection of TNMM method as Most Appropriate Method - Comaparability - capacity utilization - TPO has rejected the three comparables on the premise that the assessee has not furnished the details, though said information was ascertainable and discernable from the record reproduced hereinabove but the TP Officer, has rejected the three comparables on the premises that the capacity utilization figures of production as well as of the installed capacity are not available in the same units - HELD THAT:- Firstly if the TPO is rejecting three comparables on account of non availability of the capacity utilization and installed capacity in the same unit, it does not debar the TPO from using his powers under the Act. TPO is duty bound to move a step forward and issue a notice under Section 133 to seek the information of capacity utilization of installed as well as production in the same unit which is not done by the TPO. TPO was under obligation in law to conduct his own TP study , if rejected the three comparable were rejected by him by bringing more comparable which are comparable with the profile of the assessee. That exercise of bring more comparables in the form of TP study had not been done by TPO and TPO had determined the ALP adjustment based on only one comparable and further notice under section 133 were not issued to the comparables for seeking the necessary information’s on capacity utilization . The case in hand is not one case, where it is not possible for TPO to find out the other suitable comparable after rejecting the comparables of the assessee. But no efforts were made by the TPO to find out the more comparable so as to make the ALP adjustment based on mean profit margin of the comparables. In our view, the making adjustment on the basis of standalone comparable is not a healthy practice, unless the comparable available is internal one and is therefore required to be dissuaded. Adjustment made by the TPO on the basis of one comparable is not sustainable in the eye of law and accordingly we have no hesitation to reject the orders passed by lower authorities however we deem it appropriate to direct the TPO to conduct a fresh TP study after taking into consideration the above said observation and also the profile of the assessee. Accordingly, this issue is decided in favour of the assessee for the statistical purposes and entire TP grounds are remanded back to the file of TPO. Depreciation policy adopted by the appellant viz a viz the comparable - appellant advocated an alternative approach of considering cash profit upon sales margin (PBDIT/Sales) as the PLI wherein the depreciaton cost would be taken out from the computation of PBDIT - HELD THAT:- We are remanding back the TP issue to be the file of the Transfer Pricing Officer for conducting the fresh TP study after searching the fresh comparables in accordance with law, therefore no purpose would be served to adjudicate the present ground as it will be of academic in nature. Accordingly this ground is dismissed as being infructuous.
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